ABC Ltd. had issued 65000 12% preference shares of RS. 10 each redeemable at par after 31st Dec 2016. In January, 2018 the company decided to redeem the preference shares. The company has RS. 450000 in P&L A/c and 300000 in General Reserve A/c. Show the journal entries.u
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Explanation:
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Preference shares are to redeemed using some of the company's assets and issuing new shares.
Preferencesharetoberedeemed=Facevalueofshare+Premium
Substitute values in the above equation
Preferencesharetoberedeemed=Rs6,00,000+Rs60,000=Rs6,60,000
Equitysharestobeissue=
Marketvalueofshare
RedeemableValue−Cashused−Salevalue
Substitute values in the above equation
Equitysharestobeissue=
105
Rs6,60,000−Rs50,000−Rs4,00,000
=
105
Rs2,10,000
=2000shares
Hence, X Ltd has to issue 2000shares for the redemption purpose.
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