Question

A company had, as part of its share capital 1,000 redeemable preference shares of Rs.100

each fully paid up. When the shares became due for redemption, the company had

Rs.60,000 in its reserve fund. The company made minimum new issue of equity shares of

Rs.25 each necessary for the purpose of redemption and received cash in full. Make the

necessary journal entries recording the above transactions.​

Answer 1

Answer:

If the preference shares are redeemed out of accumulated profit, it will be necessary to transfer an amount equal to the amount repaid on the redemption to Capital Redemption Reserve Account. If the company issues any fresh shares for redemption purpose, the transferred amount will be the difference between nominal value of shares redeemed and the nominal value of shares issued (i.e. amount transferred to CRR = Nominal value of shares redeemed – Nominal value of shares issued). The capital redemption reserve account can be used for issuing fully paid bonus shares.

Therfore, amount to be transferred to capital redemption reserve account will be Rs. 70000.