Question : Choose which of the following statements is true?
Option 1: If a company sets aside profit to Debentures Redemption Reserve, it means redemption is not out of capital alone.
Option 2: If a company sets aside profit equivalent to nominal (face) value of outstanding debentures to Debentures Redemption Reserve, it means redemption is out of profits.
Option 3: Both 1 and 2
Option 4: None of the above
Correct Answer: Both 1 and 2
Solution : Answer = Both 1 and 2
Setting aside the profit for Debentures Redemption Reserve indicates a provision for future debenture redemption. If it's equivalent to the nominal value of outstanding debentures, it implies redemption from profits. If not, it suggests redemption from a combination of profits and other sources, like capital. Hence, the correct option is 3.
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