Post-Redemption as per Schedule III to Companies Act 2013

After redeeming debentures, a company must properly account for and present the impact of redemption in its financial statements as per Schedule III of the Companies Act, 2013. The redemption affects the Balance Sheet, Statement of Profit and Loss, and Notes to Accounts.

Balance Sheet Presentation (Post-Redemption Impact)

After redemption, the debenture liability is removed from the Balance Sheet. The key adjustments include:

A. Liabilities Side (Non-Current and Current Liabilities)

1. Long-Term Borrowings (Non-Current Liabilities)

   • The redeemed debentures are removed from the “Long-Term Borrowings” section.

   • If partial redemption occurs, the remaining debentures continue to be reported.

2. Other Current Liabilities (If Any Outstanding Redemption Payable)

   • If some debentures remain unpaid at the reporting date, they are classified under Current Liabilities.

B. Assets Side (Investments and Reserves)

1. Reduction in Investments (If Redemption Done via Sinking Fund Investment Sale)

   • If a Sinking Fund was used for redemption, the respective Sinking Fund Investments are liquidated and removed from the Balance Sheet.

2. Adjustment in Reserves and Surplus

   • If debentures were redeemed out of profits, a corresponding amount is transferred from General Reserve to Debenture Redemption Reserve (DRR) before redemption and later adjusted post-redemption.

   • If redeemed out of fresh issue of shares or debentures, no impact on reserves.

Balance Sheet Format (Post–Redemption Impact)

Impact on Statement of Profit & Loss

• If redemption involves a premium, the additional cost is recorded as “Loss on Redemption of Debentures” under Finance Costs or Exceptional Items in the Profit & Loss Account.

• If a profit or loss arises from the sale of investments (in case of Sinking Fund Method), it is recorded under “Other Income” or “Other Expenses”.

Format of P&L Statement (Impact Section)

Notes to Accounts (Post–Redemption Disclosure)

As per Schedule III of the Companies Act, 2013, the Notes to Accounts should include:

1. Debenture Redemption Details: Mention the number of debentures redeemed, redemption mode (lump sum, installment, sinking fund, etc.), and premium paid (if any).

2. Debenture Redemption Reserve (DRR) Transfer: Explain adjustments made to the DRR and General Reserve post-redemption.

3. Investment Sale (If Sinking Fund Method Used): Disclose sale of investments made to fund the redemption.

Example of Notes to Accounts (Debenture Redemption)

Note No. X: Long-Term Borrowings

“During the year, the company has redeemed ₹XX,XX,XXX worth of debentures through sinking fund investment sale and transfer from general reserves. A total of ₹XX,XX,XXX was utilized from the Debenture Redemption Reserve (DRR). The outstanding debenture liability now stands at ₹XX,XX,XXX.”

Important Considerations Under Schedule III

1. Disclosure is Mandatory: Any change in long-term liabilities due to debenture redemption must be disclosed separately in Notes to Accounts.

2. Debenture Redemption Reserve (DRR) Adjustment: As per the Companies (Share Capital and Debentures) Rules, 2014, DRR is required for unlisted NBFCs and HFCs but not for listed companies.

3. Impact on Cash Flow Statement: Cash outflows for redemption must be shown under Financing Activities in the Cash Flow Statement.