Redemption of Shares and Debentures

Abstract

In the straightforward case of repaying debentures the entry will be

• Cr. Bank

• Dr. Debentures

This will eliminate the liability and is all that needs to be done. However, because of the strain on the bank balance, many companies set aside out of profits annually an amount to provide for the redemption; this is done as follows:

• Dr. Profit and loss

• Cr. Debenture redemption reserve

The debenture redemption reserve is part of the total reserves of the company making up the shareholders’ funds. By doing this the company is indicating that it is not intending to distribute those reserves by way of dividends.