Question : Debentures can be redeemed by utilising -
Option 1: Redemption Out of Capital
Option 2: Redemption Out of Profit
Option 3: Redemption Partly out of Profits and Partly out of Capital
Option 4: All of the Above
Correct Answer: All of the Above
Solution : (i) Redemption Out of Capital: When debentures are redeemed without adequate profits being transferred from Surplus, i.e., Statement of Profit and Loss to Debentures Redemption Reserve (DRR), at the time of redemption of debenture, such redemption is said to be out of capital.
(ii) Redemption Out of Profits: When debentures are redeemed only out of profits and an amount equal to the nominal (face) value of Debentures is transferred from Surplus, i.e., Statement of Profit and Loss to Debentures Redemption Reserve (DRR) before the redemption of debentures, such redemption is said to be out of profits.
(iii) Redemption Partly out of Profits and Partly out of Capital: It means that the company does not transfer 100 percent nominal (face) value of total redeemable debentures of a particular series to DRR from Surplus, i.e., Balance in Statement of Profit and Loss.
Hence the Correct answer is 4.
