A company has 10,000 9% redeemable preference shares of Rs.100 each fully paid. The company decides to redeem the shares on 31 Dec. 2004 at a premium of 10%. The company makes the following issues: a)6,000 equity shares of Rs.100 each at a premium of 10% b)4,000 8% debentures of Rs.100 each The issue was fully subscribed and allotments were made. The redemption was duly carried out. The company has sufficient profits. You are required to give the necessary entries.
Answers
Answer:
Option D
Explanation:
Correct option is
D
Rs. 1,12,000
As per section 80 of the Companies Act 1956, company can redeem preference shares only out of fresh issue or profits that are available for distribution as dividends. In case, there is premium to be paid on redemption it should be paid out of profit available for paying dividends or out of securities premium account.
Amount to be paid on redemption = 2,00,000 + 20,000 ( 10% of 2,00,000)
= 2,20,000
Amount of fresh issue = Amount to be paid on redemption - (Free reserves + securities premium reserve)
= 2,20,000 - ( 30,000 + 20,000 + 8,000 + 50,000)
= Rs-1,12,000.