Question

Following are debits of ABC Ltd: Outstanding Redeemable preference shares $=$ Rs. $3,00,000$ Premium on redemption $=$ $10\%$ General Reserve $=1,15,000$. Security Premium Balance $=$Rs. $35,000$ Fresh issue of shares to be made at $10\%$ discount. The face value of fresh issued share will be ________.

• A. Rs. $1,66,667$
• B. Rs. $1,50,000$
• C. Rs. $1,85,000$
• D. Rs. $1,80,000$

Answer 1

The correct option is A Rs. $1,66,667$

The preference shares can be redeemed with use of reserves as well as issue of new shares.

$MarketValueofnewissuedshares=RedeemValue-Valueofreserves$

Substitute values in the above equation

$MarketValueofnewissuedshares=Rs3,00,000-Rs(1,15,000+15,000)=Rs1,50,000$

$Numberofshares=\frac{Totalvalue}{Marketvaluepershare}$

Substitute values in the above equation

$Numberofshares=\frac{Rs1,50,000}{Rs90}=1667shares$

$FaceValueoffreshshares=No.ofshares\times Facevalueofashare$

Substitute values in the above equation

$FaceValueoffreshshares=1667shares\times Rs100=Rs1,66,700$.