Question

State with the reasons whether the following statements are True or False:
Redemption funds is used for issue of bonus shares.

• A. True
• B. False

Answer 1

The correct option is B False

(i) Redemption fund is created to redeem the debentures.
(ii) According to Section 117C of Companies Act, the company is required to create Debentures Redemption Reserve out of its profits every year until such debentures are redeemed.
(iii) At least 50% amount of debentures issued should be redeemed from Debentures Redemption Reserve.
(iv) Bonus shares are issued by capitalizing the general reserves of the company and not on the Redemption fund.
(v) So Redemption fund is not used for issue of bonus shares.