AccountsISC Class 12 · Redemption of Debentures

Debenture Redemption Reserve and Debenture Redemption Investment: ISC Class 12 Accounts

Updated 16 October 2026 · Fact-checked

Debenture Redemption Reserve (DRR) is set aside from profits: unlisted companies other than NBFCs and HFCs create it at 10% of outstanding debentures. Debenture Redemption Investment (DRI) of at least 15% of debentures maturing in the year must be made by 30 April by listed companies and unlisted non-financial companies. DRR moves to General Reserve after redemption.

DRR keeps profits back and later moves to General Reserve; DRI puts 15% of maturing debentures into safe deposits by 30 April.

Illustration drawn for QuestionBuddy.

Understand Debenture Redemption Reserve and Investment

Why DRR? Profits are kept back so the company does not distribute everything as dividend and later struggle to repay. It reassures debenture holders, protects liquidity and avoids having to sell assets to redeem. ISC asked for this reasoning in 2025; examiners noted that most candidates did not understand the question and skipped it, and some wrote the DRR percentage instead of the reason.

DRR rules in the syllabus.

Listed companies, including NBFCs and HFCs: no DRR.
Unlisted NBFCs (RBI-registered) and HFCs (NHB-registered): no DRR.
Unlisted companies other than NBFCs and HFCs: DRR = 10% of outstanding debentures.
All India Financial Institutions, banking companies, other financial institutions under Section 2(72), and unlisted NBFCs and HFCs: exempt from both DRR and DRI.

Entry: Statement of Profit and Loss (Surplus) Dr; To Debenture Redemption Reserve. On redemption: DRR Dr; To General Reserve, in proportion to debentures redeemed.

DRI rules. Listed companies (including NBFCs and HFCs) and unlisted companies other than NBFCs and HFCs must, on or before 30 April each year, deposit or invest at least 15% of debentures maturing during the year ending 31 March next, in scheduled bank deposits free from charge, or in government or trust securities named in the syllabus.

DRI entries.

Invest: DRI A/c Dr; To Bank.
Interest with TDS: Bank Dr (net); TDS Dr; To Interest on DRI. Close: Interest on DRI Dr; To Statement of Profit and Loss. ISC examiners in 2024 noted interest taken for twelve months instead of eleven when the deposit was made on 30 April, and the closing entry omitted.
Sale: Bank Dr; To DRI. A gain is first recorded by DRI Dr; To Gain on Sale of DRI; a loss by Loss on Sale of DRI Dr; To DRI. Both are then closed to the Statement of Profit and Loss.

Redemption entry. Debentures Dr (face value) and Premium on Redemption Dr; To Debenture holders. Then Debenture holders Dr; To Bank. Debentures are always debited at face value only.

Debenture Redemption Reserve and Investment: key facts

DRR (unlisted, non-NBFC/HFC): DRR = 10% × Outstanding debentures; Created out of profits.
DRI: DRI ≥ 15% × Debentures maturing during the year ending next 31 March; On or before 30 April.
Who needs what: Listed: DRI only
Unlisted non-NBFC/HFC: DRR and DRI
Unlisted NBFC/HFC, banks, AIFIs, other FIs: neither
Interest on DRI: DRI × Rate × Months held ÷ 12; Bank = Interest − TDS; From 30 April to 31 March is 11 months.
Gain or loss on sale of DRI: Sale value − Book value of DRI; Through Gain/Loss on Sale of DRI A/c to the Statement of P&L.

How to answer Debenture Redemption Reserve and Investment questions

ISC sets 3-mark journal or ledger questions on DRR and DRI almost every year. Classify the company first.

1Classify the company: listed, unlisted non-financial, unlisted NBFC/HFC, bank or AIFI.
2Decide whether DRR, DRI, both or neither apply.
3Calculate DRR at 10% of outstanding debentures and DRI at 15% of those maturing next year.
4Record DRI interest for the exact months, with TDS, and close it to the Statement of P&L.
5Record the sale of DRI and the gain or loss through its own account.
6Redeem at face value plus any premium; transfer DRR to General Reserve.

Debenture Redemption Reserve and Investment in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Keeping part of the repayment ready in advance

Suppose a family must repay a ₹8,00,000 loan next March. The lender insists that by 30 April they put 15% of that amount into a separate fixed deposit that they cannot use for anything else.

How much must they deposit, and why does the lender ask for it?

Try it first, then show the solutionSolution

Deposit = 15% × 8,00,000 = ₹1,20,000.
It guarantees that at least part of the repayment is ready, whatever happens to their other spending.

Answer: ₹1,20,000, kept aside as a safety cushion, which is what a Debenture Redemption Investment does for debenture holders.

Memory hook: Ten to reserve, fifteen to invest.

Tricks to remember Debenture Redemption Reserve and Investment

Short memory aids. Say each one aloud once, then use it on a question the same day.

10-15-30
DRR 10% of outstanding; DRI 15% of maturing; invest by 30 April.
Use it when: Rule questions.
Listed: invest, don't reserve
Listed companies skip DRR but still make DRI.
Use it when: Classifying companies.
Face value only
Debentures A/c is debited at face value; premium on redemption is a separate debit.
Use it when: Redemption entries.

Debenture Redemption Reserve and Investment: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: DRR for an unlisted company · 1 mark · MCQBoard level

An unlisted manufacturing company has ₹46,00,000 of debentures outstanding. Under the rules in the ISC syllabus, its DRR must be:
(a) nil
(b) ₹4,60,000
(c) ₹6,90,000
(d) ₹23,00,000

Try it first, then show the solutionSolution

Unlisted, not an NBFC or HFC: DRR applies.
10% of 46,00,000 = 4,60,000.

Answer: (b) ₹4,60,000

Example 2: DRR and DRI amounts · 3 marks · Short answerBoard level

Peepal Pvt. Ltd, an unlisted manufacturing company, has 36,000, 8% Debentures of ₹100 each, all maturing on 31 March next year. Calculate the DRR and DRI and pass the entries. (3 marks)

Try it first, then show the solutionSolution

Debentures = ₹36,00,000.
DRR = 10% = ₹3,60,000: Statement of P&L Dr; To DRR.
DRI = 15% = ₹5,40,000 by 30 April: DRI A/c Dr; To Bank.

Answer: DRR ₹3,60,000; DRI ₹5,40,000.

Example 3: Interest on DRI with TDS · 3 marks · Short answerHarder board level

A company invested ₹5,40,000 in a bank deposit as DRI on 30 April 2025, earning 7% p.a. Its year ends on 31 March 2026. TDS is 10%. Pass the entries for interest and its closing. (3 marks)

Try it first, then show the solutionSolution

Interest for 11 months = 5,40,000 × 7% × 11/12 = ₹34,650.
Bank Dr 31,185; TDS Dr 3,465; To Interest on DRI 34,650.
Interest on DRI Dr 34,650; To Statement of Profit and Loss 34,650.

Answer: Interest ₹34,650: ₹31,185 received, ₹3,465 TDS; closed to the Statement of P&L.

Example 4: Full redemption with DRI sold at a loss · 6 marks · Long answerHarder board level

Rohini Pvt. Ltd (unlisted, manufacturing) has 26,000, 9% Debentures of ₹100 each redeemable at a 4% premium on 31 March 2026, and the required DRR. DRI was made on 1 April 2025 at 7% p.a. (TDS 10%) and realised at 98% on the redemption date. Calculate DRR, DRI, interest, the loss on sale and the amount paid to debenture holders, and state the DRR transfer. (6 marks)

Try it first, then show the solutionSolution

DRR = 10% × 26,00,000 = ₹2,60,000; DRI = 15% = ₹3,90,000.
Interest (12 months) = ₹27,300; TDS ₹2,730; bank ₹24,570.
Sale = 98% × 3,90,000 = ₹3,82,200; Loss on Sale of DRI ₹7,800 (to the Statement of P&L).
Debentures Dr 26,00,000; Premium on Redemption Dr 1,04,000; To Debenture holders 27,04,000; paid ₹27,04,000.
DRR Dr 2,60,000; To General Reserve 2,60,000.

Answer: DRR ₹2,60,000; DRI ₹3,90,000; interest ₹27,300; loss on sale ₹7,800; holders paid ₹27,04,000; DRR to General Reserve.

Example 5: Listed company: DRI only, sold at a gain · 6 marks · Long answerHOTS / competency

Sal Ltd, a listed manufacturing company, has 44,000 Debentures of ₹100 each maturing next year. Does it need DRR? Calculate the DRI, and record its sale at 102%. (6 marks)

Try it first, then show the solutionSolution

Listed company: no DRR under the syllabus rules.
DRI = 15% × 44,00,000 = ₹6,60,000.
Gain: DRI A/c Dr 13,200; To Gain on Sale of DRI 13,200.
Sale: Bank Dr 6,73,200; To DRI 6,73,200. Gain closed to the Statement of P&L.

Answer: No DRR; DRI ₹6,60,000; sold for ₹6,73,200 with a gain of ₹13,200.

Example 6: Classifying companies · 3 marks · Short answerHOTS / competency

State whether DRR and DRI are required for: (i) a listed manufacturing company; (ii) an unlisted NBFC registered with RBI; (iii) an unlisted manufacturing company; (iv) a banking company. (3 marks)

Try it first, then show the solutionSolution

(i) Listed: no DRR; DRI required.
(ii) Unlisted NBFC: exempt from both.
(iii) Unlisted non-financial: DRR 10% and DRI 15%.
(iv) Banking company: exempt from both.

Answer: (i) DRI only; (ii) neither; (iii) both; (iv) neither.

Where students lose marks in Debenture Redemption Reserve and Investment

The slips examiners see most often, and what to write instead.

Mistake: Debentures debited at redemption value
Including the premium in the debenture debit.
Wrong working
Debentures Dr 27,04,000
Right working
Debentures Dr 26,00,000; Premium on Redemption Dr 1,04,000
Do this: A debenture is debited only at face value; ISC examiners in 2024 noted this.
Usually costs: 1 mark.
Mistake: Twelve months' interest from 30 April
Assuming a full year.
Wrong working
5,40,000 × 7% = 37,800
Right working
5,40,000 × 7% × 11/12 = 34,650
Do this: Count months; 2024 examiners reported this error.
Usually costs: 1 mark.
Mistake: Loss on DRI straight to P&L
Skipping the loss account.
Wrong working
Statement of P&L Dr; To DRI
Right working
Loss on Sale of DRI Dr; To DRI; then closed to the Statement of P&L
Do this: ISC examiners in 2025 noted the missing Loss on Sale of DRI A/c.
Usually costs: 1 mark.
Mistake: Creating DRR for a listed company
Applying the 10% rule to all companies.
Wrong working
Sal Ltd DRR 4,40,000
Right working
Sal Ltd: no DRR
Do this: Classify the company first.
Usually costs: 1 mark.

Exam tips

Name the company type in your first line: 'Unlisted manufacturing: DRR and DRI apply'.
Show the 11/12 or 12/12 fraction in interest workings.
Close Interest on DRI, Gain or Loss on Sale of DRI to the Statement of P&L.
Prepare ledger accounts when the question asks; 2025 examiners noted journals given instead.

Practice questions on Debenture Redemption Reserve and Investment

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
DRI for debentures maturing during the year must be made on or before:
(a) 1 April
(b) 30 April
(c) 30 June
(d) 31 March
Hint
10-15-30.
Answer
(b) 30 April
Q2 · 1 mark · MCQBoard level
After the debentures are redeemed, the Debenture Redemption Reserve is transferred to:
(a) Capital Reserve
(b) General Reserve
(c) Securities Premium
(d) Statement of Profit and Loss
Hint
It is a revenue reserve, now free.
Answer
(b) General Reserve
Q3 · 3 marks · Short answerBoard level
An unlisted manufacturing company has ₹22,00,000 of debentures, all maturing next year. Calculate DRR and DRI. (3 marks)
Hint
10% and 15%.
Answer
DRR ₹2,20,000; DRI ₹3,30,000.
Q4 · 3 marks · Short answerHarder board level
DRI of ₹4,20,000 was made on 30 April at 5% p.a.; TDS 10%; year ends 31 March. Calculate the interest, TDS and cash received. (3 marks)
Hint
Eleven months.
Answer
Interest ₹19,250; TDS ₹1,925; cash ₹17,325.
Q5 · 3 marks · Short answerHarder board level
DRI of ₹2,80,000 is realised at 103%. Pass the entries. (3 marks)
Hint
Record the gain in DRI first.
Answer
DRI A/c Dr 8,400; To Gain on Sale of DRI 8,400. Bank Dr 2,88,400; To DRI A/c 2,88,400.
Q6 · 1 mark · Assertion-reasonHarder board level
Assertion (A): A listed company need not create DRR but must make a Debenture Redemption Investment.
Reason (R): The rules in the syllabus exempt listed companies from DRR but require them to invest at least 15% of debentures maturing during the year.
(a) Both A and R are true, and R is the correct explanation of A.
(b) Both A and R are true, but R is not the correct explanation of A.
(c) A is true, but R is false.
(d) A is false, but R is true.
Hint
Listed: DRI only.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q7 · 6 marks · Long answerHarder board level
An unlisted company redeems 12,000 Debentures of ₹100 each at a 5% premium; DRR of ₹1,20,000 exists. Pass the redemption entries and the DRR transfer. (6 marks)
Hint
Holders are owed ₹12,60,000.
Answer
Debentures Dr 12,00,000; Premium on Redemption Dr 60,000; To Debenture holders 12,60,000. Debenture holders Dr 12,60,000; To Bank 12,60,000. DRR Dr 1,20,000; To General Reserve 1,20,000.
Q8 · 3 marks · Short answerHarder board level
An unlisted manufacturing company has ₹34,00,000 of debentures outstanding, of which ₹14,00,000 mature next year. Calculate DRR and DRI. (3 marks)
Hint
Different bases.
Answer
DRR = 10% × 34,00,000 = ₹3,40,000; DRI = 15% × 14,00,000 = ₹2,10,000.
Q9 · 6 marks · Long answerHOTS / competency
DRI of ₹4,80,000 was held for a full year at 6% p.a. (TDS 10%) and realised at 96%. Calculate the interest, TDS, cash from interest, loss on sale and the net effect on profit. (6 marks)
Hint
Interest is income; loss is expense.
Answer
Interest ₹28,800; TDS ₹2,880; cash ₹25,920; sale ₹4,60,800; loss ₹19,200; net effect on profit +₹9,600.
Q10 · 3 marks · Short answerHOTS / competency
A debenture holder of an unlisted cement company asks why the company keeps a Debenture Redemption Reserve of 10% of outstanding debentures when it already makes a Debenture Redemption Investment of 15% of the debentures maturing this year. Explain how each protects him. (3 marks)
Hint
One is a reserve on the liabilities side; the other is an asset.
Answer
DRR is an appropriation of profit: it stops those profits being paid out as dividend, so resources stay in the business throughout the life of the debentures, but it is not cash. DRI is an actual deposit or investment made by 30 April, kept only for the debentures maturing that year, so at least 15% of the repayment is ready in liquid form. Together they protect both solvency and liquidity.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.DRR rate for unlisted non-financial companies?Show answer
10% of outstanding debentures.
2.DRI rate and base?Show answer
15% of debentures maturing during the year.
3.Does an unlisted NBFC need DRI?Show answer
No.
4.Interest on DRI is closed to?Show answer
The Statement of Profit and Loss.
5.DRR after redemption goes to?Show answer
General Reserve.

Debenture Redemption Reserve and Investment: frequently asked questions

Is DRR a charge against profit?

No. It is an appropriation of profit, transferred from the Statement of Profit and Loss (Surplus).

Can DRI be used for anything other than redemption?

No. It must be kept for repaying debentures maturing during the year.

Where is DRI shown in the Balance Sheet?

Under investments (current or non-current depending on when it will be realised).

What if DRR is created from the year of issue but redemption is in instalments?

DRR is transferred to General Reserve in proportion to the debentures redeemed in each instalment, as the syllabus states.