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Class 12 Redemption of Debentures: cheat sheet
CBSE Accountancy. In the NCERT book, not in the CBSE 2026–27 exam: lump sum, draw of lots, open-market purchase, conversion, DRR and DRI.
Key ideas
- Redemption is repaying debentureholders as the terms say; the CBSE exam asks only for this meaning.
- An other unlisted company keeps a 10% DRR, moved to General Reserve once the debentures are repaid.
- By 30 April it invests 15% of the debentures maturing that year (DRI), encashed when they are repaid.
- Profit on cancelling own debentures goes to Capital Reserve; a loss is written off to profit and loss.
Remember
| DRR; DRI | 10% of outstanding; 15% of those maturing in the year |
| Amount due | face value + premium on redemption |
| Profit on own debentures | face value − (cost + expenses) |
| Shares on conversion | amount due ÷ issue price of one share |
Watch out
- Crediting profit on own debentures to profit and loss, not Capital Reserve.
- Creating a DRR for a listed company, which is exempt.
Worked example
Greenleaf Ltd, an ‘other unlisted’ company, decided to redeem 5,700 11% Debentures of ₹100 each at par. It created the required Debenture Redemption Reserve, made the required Debenture Redemption Investment and encashed it at redemption. It bought 3,300 of the debentures in the open market at ₹90 each, with expenses of ₹1,500, and cancelled them; the rest were redeemed at par by draw of lots. Pass the journal entries.
Working: DRR ₹57,000, DRI ₹85,500; cost 3,300 × ₹90 + ₹1,500 = ₹2,98,500, profit ₹31,500; by lots 2,400 × ₹100
Answer: (i) Surplus, i.e. Balance in Statement of Profit and Loss A/c Dr. ₹57,000 To Debenture Redemption Reserve A/c ₹57,000 (DRR of 10% of the debentures) (ii) Debenture Redemption Investment A/c Dr. ₹85,500 To Bank A/c ₹85,500 (15% invested) (iii) Bank A/c Dr. ₹85,500 To Debenture Redemption Investment A/c ₹85,500 (investment encashed) (iv) 11% Debentures A/c Dr. ₹3,30,000 To Bank A/c ₹2,98,500 To Profit on Redemption of Debentures A/c ₹31,500 (own debentures bought and cancelled) (v) Profit on Redemption of Debentures A/c Dr. ₹31,500 To Capital Reserve A/c ₹31,500 (capital profit transferred) (vi) 11% Debentures A/c Dr. ₹2,40,000 To Bank A/c ₹2,40,000 (debentures redeemed by draw of lots) (vii) Debenture Redemption Reserve A/c Dr. ₹57,000 To General Reserve A/c ₹57,000 (DRR transferred after redemption)
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