Question

A company wishes to redeem its preference shares amounting to Rs. 1,00,000 at a premium of $5\%$ and for this purpose issues 5,000 equity shares of Rs. 10 each at a premium of $5\%$. The company also has a balance of Rs. 1,00,000 as general reserves and Rs. 50,000 in profit & loss account. The amount to be transferred to capital redemption reserves account for the purpose of redemption is:

• A. Rs. 47,500
• B. Rs. 50,000
• C. Rs. 52,500
• D. Rs. 1,05,000

Answer 1

The correct option is B Rs. 50,000

From the above conditions it is clear that if the preference shares are redeemed out of accumulated profit it will be necessary to transfer an amount equal to the amount repaid on redemption to capital redemption reserve account. if the company issues any fresh shares for redemption purpose the transferred amouunt will be the difference between nominal value of hare redeemed and the nominal value of share issued.

CRR = Nominal value of share redeemed - Nominal value of share issued

Therefore, in the given question amount should be transferred to capital redemption reserve account is :

Rs. 100000 - Rs. 50000 = Rs. 50000

(Rs. 100000 = Nominal value of share redeemed)

(Rs. 50000 = Nominal value of share issued)

(Rs. 50000 = Capital redemption reserve)