Question

Preference shares amounting to Rs. 2,00,000 are redeemed at a premium of 5%, by issue of shares amounting to Rs. 1,00,000 at a premium of 10 %. The amount to be transferred to capital redemption reserve will be _____.

• A. Rs. 1,05,000
• B. Rs. 1,00,000
• C. Rs. 2,00,000
• D. Rs. 1,11,000

Answer 1

The correct option is B Rs. 1,00,000

If the company issues any fresh shares for redemption purpose, the transferred amount will be the difference between nominal value of shares redeemed and the nominal value of shares issued (i.e. amount transferred to CRR = Nominal value of shares redeemed – Nominal value of shares issued). The capital redemption reserve account can be used for issuing fully paid bonus shares. Here nominal value of redeemable shares is Rs 200000 and nominal value of issued share Rs 1,00,000, So, the amount to be transferred to capital redemption reserve will be Rs 2,00,000- Rs 1,00,000 i.e. Rs 1,00,000.