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Business Studies

Preference Shares

Preference Sh...

Question

Preference Shares may be redeemed either out of the proceeds of issue of equity shares or out of divisible profits.

A

True

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B

False

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Solution

The correct option is B False
The Companies Act permits the redemption of shares from out of the profits, which are otherwise available for dividend.
In case the redemption is out of profits, the company is expected to transfer an equal amount to an account called 'Capital Redemption Reserve Account' out of divisible profits.

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Similar questions

Q. Consider the following statements:
(1) Preference shares can be redeemed either out of profit of the company or out of the proceeds of fresh issue.
(2) Preference shares are redeemed after equity shares.
(3) Preference shareholders have preference right as to dividend as well as return of capital.
(4) A company cannot issue preference shares redeemable after 20 years.
The correct statements are ________________.

Q. When redeemable preference shares are redeemed out of divisible profits, an amount equivalent to the nominal value of the shares redeemed must be transferred out of divisible profits to _________.

Q. Consider the following statements:
Redeemable preference shares can be redeemed out of
1. sale proceeds of the new issue of shares.
2. sale proceeds of the new issue of debentures.
3. profits available for dividends.
4. sales proceeds of the fixed assets of the company.
Of these statements:

Q. When preference shares are redeemed out of divisible profits, a transfer to Capital Redemption Reserve can be made out of _____________.

Q. When preference shares are redeemed out of profits, such profits must be_____.

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