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Authorised Share Capital

If any premiu...

Question

If any premium is to be payable on redemption of preference share, such premium has to be provided_____.

A

Out of the profits which would otherwise be available for dividend i.e. free reserve

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B

Out of the securities premium account

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C

(A) or (B)

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D

None of the above

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Solution

The correct option is C (A) or (B)
Redemption of preference shares means returning the preference share capital to the preference shareholders either at a fixed date or after a certain time period during the life time of the company provided company must complied certain conditions. Shares can be redeemed out of the profit of the company which would otherwise be available for the dividend; or out of the proceeds of a fresh issue of shares made for the purpose of redemption. If any such premium is payable then it is out of profits which is available in free reserve or in securities premium account.

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Redeemable preference shares of a company can be redeemed out of
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