in draw of lots method, if DRI is not encashed every year, what is the amount that should be invested in the first year. for ex: debentures worth rs. 200000 is to be redeemed in 5 equal instalments through draw of lots method . so, what is the amount of debenture investment during the first year of redemption? Is it the entire 15% of 200000(30000) or 30000/5(6000) ?

Shri Lakshmi and Sankar!!

In case of Draw of Lots Method, DRI is created every year and encashed every year. In the given example, if debentures worth Rs 2,00,000 are to be redeemed in 5 equal annual instalments, the amount of debentures to be redeemed each year will be: 2,00,0005=Rs 40,000
So, the amount of DRI created will be 15% of the amount of debentures redeemed in the year i.e. 15100×40,000 = 6,000
On the date of redemption of debentures, we will encash DRI and then make payment to the debentureholders since DRI is created and encashed to provide ease in payment to debentureholders.

For more details, you can refer to the study material available on our website. Follow the link given below:
https://www.meritnation.com/cbse/class12-commerce/studymaterial/accountancy/company-accounts-and-analysis-of-financial-statements/issue-and-redemption-of-debentures/436_2434_17012#slide11_method-ii-redemption-by-draw-of-lots

For any queries, you can always get back to us!

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DRI should be created on value maturing,i.e, redeemed in a year...

The value maturing in the first year is Rs. 40000.
Thus, the DRI is 40000*15/100 = 6000.

As the every year amount to be redeemed is same, the DRI will be 6000 for every year of redemption. the company doesn't encash since the same 6000 is to reinvested for next draw of lot.
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but what's the rationale behind creating debenture investment and encashment of investment before redemption? Isn't supposed to ease the burden of redemption ?experts plz do explain why encashment doesn't take place in draw of lots method.
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Brilliant question!

DRI is made to meet the redemption.
Again for next year redemption, New DRI must be made in case draw of lot.

If a company doesn't encash the DRI, that means the company has sufficient money to pay for redemption.
so the the company doesn't want to encash the DRI, and again reinvest the same.

so here the rationale is, what is the need for encashing and reinvesting the same money, when there is sufficient fund.

It's like a reserve, used when needed...
thus incase of insufficient fund while redemption, the company will encash the DRI. Reinvest DRI for next draw of lot.

does my explanation satisfy your doubt?
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