Question

RS
2,00.000 equity shares of Rs 10 ench
2,00,000 6% Redeemable preference shares of its 10 each 2000,000
Capital Reserve
Oeneral Reserve
TO DO.000
Profit & Loss Account
17,00.000
The company exercises its option to redeem the preference shares on ist Jan. 2010
Ans: Amount transferred to Capital Redemption Reserve Ne-Rs.20,00,000
(le, Rs.6,00,000 from general reserve & Rs. 14,00,000 from P & L A/e)
4. The following balances appear in the ledger of a company ws on 306.2004
Share capital
Equity shares (fully paid up)
6,00,000
Redeemable Preference shares (fully paid up)
3.00,000
General reserve
2,00,000
Profit & Loss A/c (Cr. balance)
1.25.000
50,000
Securities premium account
The company decided to redeem the preference shares at a premium of 10% out of
its general reserve and undistributed profits. Give journal relating to redemption of
the preference shares
Madras, B.C.S. (SY3B) Non 2005; 1st M.Com.. April 2005; B.C.S. April
2004; 8.Com, Oct. 1996; May 19951
Capital Redemption Reserve Ale - Rs. 3,00,000​

Answer 1

Answer:

Security premium reserve account is an account created by the company for the purpose of transfer of the premium on redemption as well as issue of various shares.

Securitypremiumreservevalue=Balanceofpremium−Premiumonredemption+Premiumonissue

Premium on redemption is deducted because it is an expense that the company has to pay for the premium paid on redemption of shares. Whereas premium received on issue of shares is the income of the company.

Substitute values in the above equation

Securitypremiumreservevalue=Rs70,000−Rs60,000+Rs10,000=Rs20,000

The balance of premium account after adjustment is Rs20,000

Thus, security premium reserve account will have a  balance of Rs20,000 when considered in balance sheet.