the capital structure of the company consist of 20000 equity share of rs 10 each fully paid up and 1000 8% preference shares of rs 100 each fully paid up. general reserve rupees 80000 profit and lose account rupees 10000 investment allowance reserve rupees 10000( out of which rupees 5000 is not free for distribution as dividend) securities premium rupees 12000 and the had cash in bank rupees 98000.the preference shares were to be redeemed at a premium of 10% the director of the company decided to make fresh issue of equity share at par after utilizing the undistributed reserve and surplus subject to the condition that rupees 20000 should be retain in the general reserve and it should be utilised. pass journal entries for redemption of preference share?
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Video Transcript
So this is a problem from the exercise and it sees if rupees 200 sorry. If ₹200 600 years are bought at a premium of 20 then find the total investment. So we know what is market value? Market value is simply the face value plays the premium you pay. So here he has paid, the face value is simply replace 100 and he has paid a premium of 20, which means the market value becomes 120 which is rupees 120. Now, total investment is simply market value of single share into number of shares here board. So he has brought 200 shares at a market value of 1 20. 1 20 into 200. Simply 202 1 20 is simply 24,000, which is the option three of the possible correct answers. So I hope the explanation was cracked and helpful. Thank you for your time