redemeeable preference shares were redeemed out of general reserve entry will be
Answers
Answer:
Redemption is the process of repaying an obligation, at prearranged amounts
and timings. It is a contract giving the right to redeem preference shares within or
at the end of a given time period at an agreed price. These shares are issued on
the terms that shareholders will at a future date be repaid the amount which they
invested in the company (along with frequent payment of a specified amount as
return on investment during the tenure of the preference shares). The redemption
date is the maturity date, which specifies when repayment takes place and is
usually printed on the preference share certificate. Through the process of
redemption, a company can also adjust its financial structure, for example, by
eliminating preference shares and replacing those with other securities if future
growth of the company makes such change advantageous.
2. PURPOSE OF ISSUING REDEEMABLE
PREFERENCE SHARES
A company may issue redeemable preference shares because of the following:
1 It is a proper way of raising finance in a dull primary market.
2. A company may face difficulty in raising share capital, as its shares are not
traded on the stock exchange. Potential investors, hesitant in putting money