Question

Preference shares of Rs. 9,00,000 are redeemable by issuing 3,000 equity shares of Rs. 100 each at Rs. 140. The amount to be transferred to Capital Redemption Reserve will be ______.

• A. Rs. 3,80,000
• B. Rs. 5,00,000
• C. Rs. 4,20,000
• D. Rs. 6,00,000

Answer 1

The correct option is D Rs. 6,00,000

Here 3,000 equity shares of Rs. 100 each at Rs. 140 means face value of share is Rs 100 and market value is Rs 140. Shares are redeemable at the face value only. Hence, face value of share i.e. 3000*Rs 100, i.e. Rs 3,00,000 shall be deducted from the value of preference shares to be transferred to Capital Redemption Reserve. Hence, the amount to be transferred to Capital Redemption Reserve will be Rs 9,00,000-Rs 3,00,000 i.e. Rs 6,00,000.