Question

Ajay Ltd. decided to redeem 10,000 Preference shares of Rs. 10 each at 10% premium. Balance in profit & loss account is Rs. 65,000 and in securities premium accountis Rs. 5,000. You are required to calculate the minimum number of equity shares to be issued for the purpose of redemption if new equity shares are to be issued at 20% premium having face value of Rs. 10 each.

• A. 4,000 equity shares
• B. 5,000 equity shares
• C. 3,333 equity shares
• D. 6,000 equity shares

Answer 1

The correct option is A 4,000 equity shares

Nominal Value of preference shares + premium on redemption = Existing securities premium + divisible profits available for redemption + sale proceeds of fresh issue of new shares

Therefore, Rs 1,00,000+ Rs 10,000 = Rs 5,000 + Rs 65,000 + X

Hence, X is Rs 40,000. So, the minimum number of equity shares to be issued for the purpose of redemption if new equity shares are to be issued at 20% premium having face value of Rs. 10 each will be Rs 40,000/Rs 10 i.e. 4,000.