A company issued 5000 shares, 10% debentures of ₹100 each at a discoun...
Calculation of Amount Transferred to Debenture Redemption Reserve
Issuance of Debentures
- The company issued 5000 debentures of ₹100 each.
- The debentures were issued at a discount of 5%.
Discount on Issuance
- Discount on issuance is calculated as follows:
- Face value of debenture: ₹100
- Discount rate: 5%
- Discount amount: ₹100 x 5% = ₹5
- Therefore, the debentures were issued at a price of ₹95 each (₹100 - ₹5).
Redemption of Debentures
- The debentures are redeemable at a premium of 5%.
- Redemption value is calculated as follows:
- Face value of debenture: ₹100
- Premium rate: 5%
- Premium amount: ₹100 x 5% = ₹5
- Therefore, the company will redeem each debenture at a price of ₹105 (₹100 + ₹5).
Transfer to Debenture Redemption Reserve
- As per SEBI guidelines, companies must transfer a minimum of 25% of the total value of debentures issued to a Debenture Redemption Reserve (DRR).
- Calculation of DRR transfer:
- Total value of debentures issued: 5000 x ₹100 = ₹5,00,000
- Total value of debentures redeemed: 5000 x ₹105 = ₹5,25,000
- DRR transfer: 25% x ₹5,00,000 = ₹1,25,000
Therefore, the company must transfer ₹1,25,000 to the Debenture Redemption Reserve account.