Question

Redemption of 20,000 preference shares of Rs.100 each was carried out by utilization of

reserves and by issue of 8,000 equity share of Rs.100 each at Rs.125. How much should

be credited to capital redemption reserve a/c?​

Answer 1

Explanation:

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.