Debenture Redemption Reserve (DRR) is a fund maintained by companies that have issued debentures. Its purpose is to minimise the risk of default on repayment of debentures. … It ensures that the company has enough liquidity to make the repayment. The requirement to create a DRR was compulsory for all companies.
What is debenture redemption?
Redemption of Debentures means repayment of the amount of. debentures to the debenture holders. It implies of the principle amount as well as interest due on. debentures to the debenture holders. In other words, it refers to the discharge of liability on debentures.
Is debenture redemption fund a liability?
Until the debentures are paid off, the sinking fund appears in the liabilities side and the sinking fund investment on the assets side of the balance sheet. It should be remembered that while making investment in sinking fund the amount of interest received and the yearly sinking fund installment are invested together.
How is debenture money redeemed?
The various methods of Redeeming Debentures are payment in lump-sum, payment in instalments, conversion of debentures and purchase of debentures in the market.
What is DRR and DRI?
DRI is created on or before 30th april of the financial year in which the debentures are due for redemption and DRR is created any time before the redemption of debentures. that means DRR cam be created any time before or after the creation of DRI.
What is difference between share and debenture?
Share is the capital of the company, but Debenture is the debt of the company. The shares represent ownership of the shareholders in the company. On the other hand, debentures represent indebtedness of the company. The income earned on shares is the dividend, but the income earned on debentures is interest.
What is not a type of debentures?
6. Non-redeemable Debentures: Non-redeemable Debentures cannot be redeemed in a Company’s lifetime. Non-redeemable Debentures are only paid back on company’s liquidation.
Why sinking fund is credited?
Since a sinking fund adds an element of security and lowers default risk, the interest rates on the bonds are usually lower. As a result, the company is usually seen as creditworthy, which can lead to positive credit ratings for its debt.
How is debenture redemption fund created?
Debenture Redemption Reserve (DRR) is a fund maintained by companies that have issued debentures. … It ensures that adequate profits are available for repaying the debentures. The second component involves an investment of funds. It ensures that the company has enough liquidity to make the repayment.
Is Sinking Fund and DRR same?
Debenture Redemption Reserve (DRR) is not a method, rather it is a reserve that is to be maintained by the companies before starting the redemption process. On the other hand, Sinking Fund method is a method through which debentures are redeemed. … Thus, DRR and Sinking Fund method are not the same thing.
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Is not fictitious asset?
These assets include a debit balance of profit and loss A/c and the expenditure not yet written off such as advertising expenses etc. Among the given options Discount on issues of shares and debentures is not the example of fictitious assets.
Can debentures be redeemed?
Debentures can either be redeemed at premium or par. Redemption signifies – repaying the number of debentures to debenture holders. All terms and conditions accompanying redemption are mentioned in a company’s prospectus that initiates an invite for issuance of debentures.
Is debenture a debt?
A debenture is a type of debt instrument that is not backed by any collateral and usually has a term greater than 10 years. … Both corporations and governments frequently issue debentures to raise capital or funds. Some debentures can convert to equity shares while others cannot.
Is DRR a free reserve?
No. The capital reserves, revaluation reserves, debenture redemption reserves, securities premium and statutory reserves do not form a part of free reserves.
How DRI is created?
Direct reduced iron (DRI), also called sponge iron, is produced from the direct reduction of iron ore (in the form of lumps, pellets, or fines) into iron by a reducing gas or elemental carbon produced from natural gas or coal. Many ores are suitable for direct reduction.
What percentage of DRR is created?
Section 71(4) read with Rule 18(1)(c) of the Companies (Share Capital and Debentures) Rules, 2014 requires every company issuing redeemable debentures to create a debenture redemption reserve (“referred to as DRR”) of at least 25%/10% (as the case maybe) of outstanding value of debentures for the purpose of redemption …