AccountsISC Class 12 · Redemption of Debentures

Redemption of Debentures in Instalments by Draw of Lots: ISC Class 12 Accounts

Updated 16 October 2026 · Fact-checked

In redemption by draw of lots, a company repays its debentures in annual instalments, choosing which debentures to repay each year by lottery. ISC treats this as theory. DRI is adjusted to stay at 15% of the next instalment, DRR is moved to General Reserve in proportion to debentures redeemed, and the next instalment is shown as current maturities.

Understand Redemption in Instalments by Draw of Lots

What it is. Instead of repaying the whole issue on one date, the company repays a fixed amount each year. The particular debentures to be repaid are selected by a draw of lots, so every holder has an equal chance and no one is favoured. The terms of issue state the number of instalments and the amount of each.

Theory only. The CISCE syllabus lists redemption in annual instalments by draw of lots as 'theoretical concepts only', so ISC questions focus on the idea, the DRI and DRR rules and the Balance Sheet presentation rather than long ledger sets.

DRI with instalments (syllabus rule). The DRI bought for one instalment is not sold entirely at the year end. It is sold or topped up only to the extent needed to keep it at 15% of the face value of the debentures to be redeemed in the next instalment.

Unequal instalments: adjust each year (buy more or sell some).
Equal instalments: the DRI bought for the first instalment remains invested until the last instalment.

DRR with instalments. Wherever DRR applies, it is transferred to General Reserve in proportion to the debentures redeemed each year.

Each year's entries (outline). Debentures Dr; To Debenture holders (instalment). Debenture holders Dr; To Bank. DRR Dr; To General Reserve (proportionate). DRI adjusted as above. Interest falls each year because it is paid only on debentures still outstanding.

Balance Sheet. Under Schedule III, the instalment due within twelve months is shown as current maturities of long-term debt under Short-term Borrowings; the rest stays under Long-term Borrowings. Interest accrued but not due is shown under Other Current Liabilities. ISC examiners in 2025 noted candidates showing the whole issue as long-term and omitting current maturities.

Redemption in Instalments by Draw of Lots: key facts

Equal instalment: Instalment = Total debentures ÷ Number of instalments
DRI to be held: DRI = 15% × Face value of the next instalment; Buy or sell the difference each year.
DRR released: DRR to General Reserve = DRR × Debentures redeemed ÷ Total debentures; In proportion to debentures redeemed.
Balance Sheet split: Short-term Borrowings: instalment due within 12 months | Long-term Borrowings: the rest; Current maturities of long-term debt.
Interest each year: Rate × Debentures outstanding during the year; Falls after each instalment.

How to answer Redemption in Instalments by Draw of Lots questions

Expect short ISC questions: a 1-mark concept, a 3-mark DRI or DRR calculation, or a Balance Sheet extract with current maturities.

1Write the redemption schedule: date and amount of each instalment.
2Find the DRI for the next instalment and the purchase or sale needed.
3Find the DRR released in proportion to debentures redeemed.
4For a Balance Sheet date, split debentures into current maturities and long-term.
5Calculate interest accrued but not due, if any, for Other Current Liabilities.
6Write only the notes asked; 2025 examiners advised answering only what is asked.

Redemption in Instalments by Draw of Lots 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.

Repaying in batches chosen by lottery

Suppose a housing society holds refundable deposits from 36 members and decides to repay them over three years, 12 members a year. To be fair, it picks the 12 names each year by drawing lots.

How many deposits are repaid each year, and why use a lottery?

Try it first, then show the solutionSolution

36 deposits ÷ 3 years = 12 per year.
A lottery gives every member the same chance, so no one can claim favouritism.

Answer: 12 deposits a year, chosen by lot for fairness, which is how debentures are redeemed by draw of lots.

Memory hook: Fixed amount each year, names from a hat.

Tricks to remember Redemption in Instalments by Draw of Lots

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

Fifteen of the next
DRI is always 15% of the next instalment, not of the whole issue.
Use it when: DRI adjustments.
Equal means stay
With equal instalments, the first DRI simply stays until the end.
Use it when: Equal-instalment questions.
Next year's slice is current
The slice due within a year moves to Short-term Borrowings.
Use it when: Balance Sheet extracts.

Redemption in Instalments by Draw of Lots: solved examples

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

Example 1: How debentures are chosen · 1 mark · MCQBoard level

In redemption of debentures by draw of lots, the debentures to be redeemed each year are chosen:
(a) by the directors' choice
(b) by lottery among the outstanding debentures
(c) in order of the holders' names
(d) by the largest holdings first

Try it first, then show the solutionSolution

The method aims to treat every holder equally.
A lottery decides which debentures are repaid.

Answer: (b) by lottery among the outstanding debentures

Example 2: Current maturities · 3 marks · Short answerBoard level

Xylem Ltd has 7,000 Debentures of ₹100 each, redeemable in four equal annual instalments, the first falling due within the next twelve months. Show how the debentures appear in the Balance Sheet. (3 marks)

Try it first, then show the solutionSolution

Total = ₹7,00,000; each instalment ₹1,75,000.
Short-term Borrowings: current maturities of long-term debt ₹1,75,000.
Long-term Borrowings: Debentures ₹5,25,000.

Answer: ₹1,75,000 under Short-term Borrowings; ₹5,25,000 under Long-term Borrowings.

Example 3: Releasing DRR in proportion · 3 marks · Short answerHarder board level

Yarrow Pvt. Ltd (unlisted, manufacturing) has ₹6,80,000 Debentures and the required DRR. It redeems ₹1,70,000 by draw of lots this year. How much DRR is transferred to General Reserve? (3 marks)

Try it first, then show the solutionSolution

DRR = 10% × 6,80,000 = ₹68,000.
Proportion redeemed = 1,70,000 ÷ 6,80,000 = 1/4.
Transfer = 68,000 × 1/4 = ₹17,000.

Answer: ₹17,000: DRR Dr; To General Reserve 17,000.

Example 4: DRI with unequal instalments · 6 marks · Long answerHarder board level

Zinnia Ltd will redeem its debentures in three annual instalments: ₹2,60,000, ₹3,40,000 and ₹1,40,000. Following the syllabus rule, calculate the DRI to be held before each instalment and the purchase or sale needed each year. (6 marks)

Try it first, then show the solutionSolution

Before instalment 1: DRI = 15% × 2,60,000 = ₹39,000.
Before instalment 2: 15% × 3,40,000 = ₹51,000; buy ₹12,000 more (the ₹39,000 is not sold).
Before instalment 3: 15% × 1,40,000 = ₹21,000; sell ₹30,000.
After the last instalment the remaining ₹21,000 is realised.

Answer: DRI ₹39,000, then ₹51,000 (buy ₹12,000), then ₹21,000 (sell ₹30,000).

Example 5: Equal instalments: DRI stays invested · 6 marks · Long answerHOTS / competency

Acacia Pvt. Ltd (unlisted, manufacturing) has ₹6,50,000 Debentures redeemable in five equal annual instalments by draw of lots. Calculate the instalment and the DRI, and explain what happens to the DRI each year. (6 marks)

Try it first, then show the solutionSolution

Instalment = 6,50,000 ÷ 5 = ₹1,30,000.
DRI = 15% × 1,30,000 = ₹19,500.
Each later instalment is also ₹1,30,000, so 15% of the next instalment is always ₹19,500.
The syllabus says the DRI for the first instalment stays invested until the last instalment; it is realised then.

Answer: Instalment ₹1,30,000; DRI ₹19,500, held throughout and realised with the last instalment.

Example 6: Why draw of lots? · 3 marks · Short answerHOTS / competency

Give three reasons why a company may prefer redeeming debentures in annual instalments by draw of lots instead of a lump sum. (3 marks)

Try it first, then show the solutionSolution

It spreads the cash outflow over several years instead of one large payment.
Interest cost falls each year as debentures are repaid.
The lottery is impartial, so holders are treated fairly.

Answer: Spreads the cash burden, reduces interest year by year, and treats holders fairly through a lottery.

Where students lose marks in Redemption in Instalments by Draw of Lots

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

Mistake: Showing the whole issue as long-term
Ignoring the instalment due within a year.
Wrong working
Long-term Borrowings: Debentures 7,00,000
Right working
Long-term 5,25,000; Short-term (current maturities) 1,75,000
Do this: ISC examiners in 2025 reported current maturities being omitted.
Usually costs: 1 mark.
Mistake: Selling the whole DRI each year
Treating each instalment like a lump sum.
Wrong working
Sell 39,000; buy 51,000
Right working
Keep 39,000; buy 12,000
Do this: The syllabus says sell or buy only to keep 15% of the next instalment.
Usually costs: 1 mark.
Mistake: Releasing all DRR after the first instalment
Forgetting proportion.
Wrong working
DRR 68,000 to General Reserve
Right working
DRR 17,000 to General Reserve
Do this: Release in proportion to debentures redeemed.
Usually costs: 1 mark.
Mistake: Interest on the original amount every year
Not reducing the base.
Wrong working
Year 2 interest on 5,40,000
Right working
Year 2 interest on 4,05,000
Do this: Interest is only on debentures still outstanding.
Usually costs: 1 mark.

Exam tips

Write a small schedule table: year, instalment, DRI needed.
Use the exact term 'Current maturities of long-term debt'.
Answer only the notes asked, as 2025 examiners advised.
In theory answers, mention fairness of the lottery and spreading of cash outflow.

Practice questions on Redemption in Instalments by Draw of Lots

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
When debentures are redeemed in instalments, DRR is transferred to General Reserve:
(a) only after the last instalment
(b) in proportion to debentures redeemed
(c) in full after the first instalment
(d) never
Hint
Syllabus rule.
Answer
(b) in proportion to debentures redeemed
Q2 · 1 mark · MCQBoard level
In redemption by equal annual instalments, the DRI bought for the first instalment:
(a) is sold at the end of the first year
(b) remains invested until the last instalment
(c) is doubled each year
(d) is transferred to General Reserve
Hint
15% of each equal instalment is the same.
Answer
(b) remains invested until the last instalment
Q3 · 3 marks · Short answerBoard level
Debentures of ₹9,50,000 are redeemable in five equal annual instalments, the first within twelve months. Show the Balance Sheet split. (3 marks)
Hint
One-fifth is current.
Answer
Short-term Borrowings (current maturities) ₹1,90,000; Long-term Borrowings ₹7,60,000.
Q4 · 3 marks · Short answerHarder board level
The next instalment of debentures due is ₹3,20,000. What DRI must be held? (3 marks)
Hint
15% of the next instalment.
Answer
₹48,000.
Q5 · 3 marks · Short answerHarder board level
DRR is ₹1,50,000 on ₹15,00,000 of debentures. ₹3,75,000 is redeemed this year. How much DRR is released? (3 marks)
Hint
One-fourth redeemed.
Answer
₹37,500.
Q6 · 1 mark · Assertion-reasonHarder board level
Assertion (A): When debentures are redeemed in unequal instalments, the DRI is adjusted each year.
Reason (R): The DRI must be at least 15% of the face value of the next instalment.
(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
The base changes each year.
Answer
(a) Both A and R are true, and R is the correct explanation of A.
Q7 · 6 marks · Long answerHarder board level
Instalments of ₹4,40,000, ₹2,20,000 and ₹6,20,000 are due in three successive years. Calculate the DRI to be held before each and the sale or purchase needed. (6 marks)
Hint
15% each time.
Answer
₹66,000; then ₹33,000 (sell ₹33,000); then ₹93,000 (buy ₹60,000).
Q8 · 3 marks · Short answerHarder board level
₹5,40,000, 8% Debentures are redeemed by ₹1,35,000 at the end of year 1. Calculate the interest for year 1 and year 2. (3 marks)
Hint
Year 2 base is lower.
Answer
Year 1: ₹43,200; year 2: ₹32,400.
Q9 · 6 marks · Long answerHOTS / competency
On 1 July 2025 a company issued 8,400, 9% Debentures of ₹100 each, redeemable in three equal annual instalments from 30 June 2026, with interest payable yearly on 30 June. Show the debentures and the accrued interest in the Balance Sheet at 31 March 2026. (6 marks)
Hint
Nine months' interest accrued.
Answer
Long-term Borrowings ₹5,60,000; Short-term Borrowings (current maturities) ₹2,80,000; Other Current Liabilities: interest accrued but not due ₹56,700.
Q10 · 3 marks · Short answerHOTS / competency
Why is a draw of lots considered fair to debenture holders? Give two points. (3 marks)
Hint
Think about choice and chance.
Answer
Every outstanding debenture has an equal chance of being redeemed, and the company cannot favour particular holders; selection is transparent and impartial.

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.Is draw of lots tested as theory or numericals in ISC?Show answer
Theory (concepts) only, as the syllabus states.
2.DRI base in instalment redemption?Show answer
15% of the next instalment.
3.Where are current maturities shown?Show answer
Short-term Borrowings.
4.Equal instalments: is DRI topped up?Show answer
No, it stays as it is until the last instalment.
5.DRR released each year?Show answer
In proportion to debentures redeemed.

Redemption in Instalments by Draw of Lots: frequently asked questions

Do holders know in advance which debentures will be repaid?

No. The lottery is held before each instalment; only the amount and date are fixed in advance.

Does the company need DRR for instalment redemption?

The same DRR rules apply: unlisted companies other than NBFCs and HFCs keep 10%; listed companies do not.

Why does interest fall each year?

Interest is paid only on debentures still outstanding, and each instalment reduces that amount.

What happens to the last DRI?

It is realised when the last instalment is redeemed.