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Debenture redemption reserve is shown under the head ‘shareholders’ funds’ and sub-head ‘reserves and surplus’ in the balance sheet of a company.
  • a)
    True
  • b)
    False
  • c)
    Partially true
  • d)
    Can't say
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Debenture redemption reserve is shown under the head ‘shareholde...


Debenture Redemption Reserve in Balance Sheet

Debenture redemption reserve is indeed shown under the head 'shareholders' funds' and sub-head 'reserves and surplus' in the balance sheet of a company. This reserve is created to ensure that the company sets aside a portion of its profits for the redemption of debentures in the future.

Importance of Debenture Redemption Reserve

- The creation of a debenture redemption reserve is mandatory as per the provisions of the Companies Act, 2013, to safeguard the interests of debenture holders.
- It ensures that funds are available for the repayment of debentures when they mature, reducing the risk for debenture holders.

Placement in Balance Sheet

- In the balance sheet, the debenture redemption reserve is categorized under 'shareholders' funds' because it represents the funds set aside by the company from its profits, which ultimately belong to the shareholders.
- It is further classified under 'reserves and surplus' to distinguish it from other reserves and provide transparency regarding the purpose of these funds.

Compliance and Disclosure

- Companies are required to disclose the amount of debenture redemption reserve in their financial statements to ensure compliance with regulatory requirements.
- This reserve plays a crucial role in reflecting the financial health and commitment of the company towards fulfilling its obligations towards debenture holders.

In conclusion, the presence of debenture redemption reserve under 'shareholders' funds' and 'reserves and surplus' in the balance sheet signifies the company's adherence to regulatory guidelines and its commitment to fulfilling its obligations towards debenture holders.
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