Redeemable Preference Shares of Rs. 1,00,000 are redeemed at a premium of 5% for which purpose fresh equity capital of Rs. 40,000 is issued at par. What amount should be transferred to Capital Redemption Reserve account?
Redeemable Preference Shares of Rs. 1,00,000 are redeemed at a premium of 5% for which purpose fresh equity capital of Rs. 40,000 is issued at par. What amount should be transferred to Capital Redemption Reserve account?
The correct option is D Rs. 60,000
It is clear that if the preference shares are redeemed out of accumulated profit it will be necessary to transfer an amount equal to the amount repaid on redemption to capital redemption reserve account. if the company issues any fresh shares for redemption purpose the transferred amount will be the difference between nominal value of hare redeemed and the nominal value of share issued.
CRR = Nominal value of share redeemed - Nominal value of share issued
Therefore, in the given question amount should be transferred to capital redemption reserve account is :
Rs. 100000 - Rs. 40000 = Rs. 60000
(Rs. 100000 = Nominal value of share redeemed)
(Rs. 40000 = Nominal value of share issued)
(Rs. 60000 = Capital redemption reserve)
It is clear that if the preference shares are redeemed out of accumulated profit it will be necessary to transfer an amount equal to the amount repaid on redemption to capital redemption reserve account. if the company issues any fresh shares for redemption purpose the transferred amount will be the difference between nominal value of hare redeemed and the nominal value of share issued.
CRR = Nominal value of share redeemed - Nominal value of share issued
Therefore, in the given question amount should be transferred to capital redemption reserve account is :
Rs. 100000 - Rs. 40000 = Rs. 60000
(Rs. 100000 = Nominal value of share redeemed)
(Rs. 40000 = Nominal value of share issued)
(Rs. 60000 = Capital redemption reserve)
