Question

Redemption of Preference Shares
19. The following is the balance sheet of Sundari Ltd. as on 31.12.2006.
3.70
ng
Rs.
00
00
30
30
Liabilities
Rs. Assets
Rs.
Fixed Assets:
Share Capital:
Land and Building
1,00,000
500 Redeemable preference
Plant
30,000
Shares of Rs. 100 each fully paid 50,000 Furniture
2,000
9,000 equity shares of Rs. 10
Current assets:
each fully paid
90,000 Stock
30,000
Reserves & Surplus :
Debtors
15,000
Securities premium
10,000 Investments
28,000
General reserve
20,000 Bank
20,000
Profit & Loss A/C
25,000
Current liabilities
30,000
2,25,000
2,25,000
The company decided to redeem its preference shares at a premium of 5% on 31st
January 2007. A fresh issue of 1,000 equity share of Rs. 10 each was made at Rs. 12
per share payable in full on 31st Jan. 2007. These were fully subscribed and paid for.
All the investments were sold for Rs. 27,000. The directors wish that only a minimum
reduction should be made in the revenue reserves. You are required to give the journal
entries to record the above transactions and draw up the balance sheet after the
redemption of preference shares.
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