Question

A limited company has to redeem redeemable preference shares of the value of Rs. $1,00,000$ for which the company has issues $3000$ equity shares of Rs. $10$ each at a premium of $10\%$. The amount to be transferred to capital redemption reserve account will be.

• A. Rs. $1,00,000$
• B. Rs. $97,000$
• C. Rs. $70,000$
• D. Rs. $67,000$

Answer 1

Answer: (C)

Rs. $70,000$

If the preference shares are redeemed out of accumulated profit, it will be necessary to transfer an amount equal to the amount repaid on the redemption to Capital Redemption Reserve Account. If the company issues any fresh shares for redemption purpose, the transferred amount will be the difference between nominal value of shares redeemed and the nominal value of shares issued (i.e. amount transferred to CRR = Nominal value of shares redeemed – Nominal value of shares issued). The capital redemption reserve account can be used for issuing fully paid bonus shares.

Therfore, amount to be transferred to capital redemption reserve account will be Rs. 70000.