Question

Explain three sources of redemption of debentures

Answer 1

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Answer 2

Three sources of redemption of debentures are:

1. Out of Capital:

• The corporation may sell some fixed assets and utilize the proceeds to redeem debentures under this proposal.
• It is, however, a one-of-a-kind source of funds that is rarely utilized.
• The corporation may repurchase the debentures with its working capital.
• As a result, the firm's working capital falls.
• The company's assets are depleted in either circumstance.
• However, debenture redemption for capital is not a possibility because of the legislative constraints that govern DRR construction.
• This situation satisfies the debenture redemption criteria.

2. In Lump sum at Maturity:

• Debentures can be redeemed at face value, with a premium, or at a discount.
• When debentures are redeemed at par, the aforementioned two entries are passed.

3. Out of Profit:

• Redemption of debentures from earnings entails transferring an amount equivalent to the redeemed debentures' face value to DRR.
• As a result, a portion of the company's income is not distributed to shareholders.