Question

During the year 2005-2006, T Ltd. issued 20,000, 12% Preference shares of Rs. 10 each at a premium of 5%, which are redeemable after 4 years at par. During the year 2010-2011, as the company did not have sufficient cash resources to redeem the preference shares, it issued 10,000, 14% debentures of Rs. 10 each at a premium of 10%. At the time of redemption of 12% preference shares, the amount to be transferred to capital redemption reserve will be ______.

• A. Rs. 90,000
• B. Rs. 1,00,000
• C. Rs. 2,00,000
• D. Rs. 1,10,000

Answer 1

The correct option is C Rs. 2,00,000

As per Companies Act, 2013, capital redemption reserve will receive those amount which are redeemable and if there is any premium it must be provided out of the profits of the company or out of company's share premium account before shares are redeemed. Here, the 20,000 shares are issued at Rs 10 each and 5% premium redeemable after 4 years which means that the shares will be redeemed after 4 years i.e in 2009-10. But after 4 years there will be no premium to be paid and CRR will receive the nominal value of shares i.e. Rs 10*20,000 i..e Rs 2,00,000.