Question

Sequence of journal entrries of redemption of preference shares

Answer 1

Main aim of debiting redeemable preference share capital account is to reduce this capital from business. When any capital is reduced from business it will be debited when any capital is increased, it will be debited. In previous post, I told that capital is the liability of business. So, we have applied journal entry rule of liability. Every decrease in the liability will be debited and every increase in the liability will be credited in the journal entry. Like preference share capital, premium on redemption is also our liability and we are reducing it by debiting it.