Debentures Redemption Investment (DRI)

DRI min min - Debentures Redemption Investment (DRI)

Debentures Redemption Investment (DRI) is the amount of Debentures redemption reserve which is invested in the securities.

What is Debentures Redemption Investment (DRI) :

When the debenture issuing company create a reserve for the process of redemption of debentures then it is known as Debentures Redemption Investment. Generally, the investment amount is at least 15% of the nominal value of the debentures to be redeemed during the financial year. To create DRR, there are some specific securities in which a company requires to invest the amount. 

DRI under Section 18 Rule(7)(c):

According to Rule 18(7)(c) of the Companies (Share Capital and Debentures)Rules, 2014,

the company shall invest an amount at least equal to 15 per cent of the nominal (face) value of debentures that shall be redeemed by the company by 31st March of next year and the amount should be invested on or before 30th April of the current year.”

Thus, it is very clear that the amount to be invested or deposited by the company should not be less than 15% of the amount of debentures yet to be redeemed by 31st March of the financial year. Also, the amount should be invested in any of the specified securities on or before 30th April of that financial year.

Illustration:

Suppose, a Company named ABC Ltd. is to redeem 2,000, 12% Debentures of Rs.100 each at a premium of 10% on 31st December 2018. And also, 2,000 DEbentures at a premium of 10% on 31st December 2019. The company shall invest 15% of Rs.4,00,000 (since the nominal value of debentures to be redeemed during the financial year is Rs.4,00,000)i.e. 60,000 in any of the specified securities on or before 30th April 2018.

Journal Entry for creating Debentures Redemption Reserve:

For this, the journal entry to be passed is :

Date   Particulars
L. F. Debit Credit
           
  Debenture Redemption Investment A/c  Dr.   *****  
  To Bank a/c      ****
  (Being Investment made for the redemption of debentures)      

Exemption:

All India Financial Institutions regulated by RBI and Banking Companies, are not required to invest in specified securities. Thus, These institutions need not create DRR. Also, investment is not required to be made in specific securities if they debentures are fully convertible. In case, the debentures are partly convertible, the amount would be at least 15% of the nono convertible part of debentures.

Here, It is important to remember that the amount invested for the redemption of debentures shall not be used for any other purpose.

Specified Securities for Debentures Redemption Reserve:

Securities specified for investment are:

  1. in deposits with any Scheduled Bank, free from any charge;
  2. in unencumbered securities of the Central Government or any State Government;
  3. in unencumbered securities mentioned in sub-clauses (a) to (d) and(ee) of Section 20 of the Indian Trust Act, 1882;
  4. in unencumbered bonds issued by a company which is notified under Section 20(f) of the Indian Trust Act, 1882.

 

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References: –

    1. mca.gov.
    2. Class +2 Accountancy by Sultan Chand & Sons (P) Ltd.

 

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