Question

A transfer to Capital Redemption Reserve is required under Section 80 when preference shares are redeemed ________.

• A. by converting them into new preference shares
• B. by converting them into new equity shares
• C. out of divisible profits
• D. out of fresh issue of shares

Answer 1

The correct option is C out of divisible profits

To the extent that the preference shares are redeemed out of profits, Capital Redemption Reserve Account must be credited, debiting the profit and loss Account, general reserve or other accounts showing profits otherwise available for distribution of dividends. Capital Redemption reserve account can be utilised for the issue of fully paid bonus shares to the members of the company.