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CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures

Which statement about redemption of debentures by the company out of profits is correct under the Companies Act, 2013 as covered in this chapter?

Debentures may be redeemed in instalments, by draw of lots, or by purchase in the open market, according to the terms of issue. Redemption is not restricted to a fresh share issue, and section 55 Capital Redemption Reserve rules relate to preference shares, not debentures.

  1. ADebentures may be redeemed in instalments by the drawing of lots or purchase in the open market, as per the terms of issueCorrect
  2. BDebentures can be redeemed only out of a fresh issue of shares
  3. CCapital Redemption Reserve under section 55 is needed only for debentures
  4. DPremium on redemption of debentures must always be paid from Capital Redemption Reserve

Explanation

Debentures can be redeemed by lump sum at maturity, in instalments, by draw of lots, or by purchase in the open market, according to the terms of issue. A fresh issue of shares is not the only source. Section 55 on Capital Redemption Reserve concerns preference shares, and premium is provided from profits or securities premium, not Capital Redemption Reserve.

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