Question

S Ltd. issued 2,000, 10% Preference shares of Rs. 100 each at par, which are redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500 Equity Shares of Rs. 100 each at a premium of 20% per share. At the time of redemption of Preference Shares, the amount to be transferred by the company to the Capital Redemption Reserve Account will be _____.

• A. Rs. 50,000
• B. Rs. 40,000
• C. Rs. 2,00,000
• D. Rs. 2,20,000

Answer 1

The correct option is A Rs. 50,000

Whenever a company redeems its preference shares then the nominal value or face value of the shares is put into capital redemption reserve fund. Here, S ltd. has issued 2000 shares at Rs 100 with 10% premium i.e. Rs 10 and therefore,nominal value of shares is Rs 2,20,000. For redemption 1500 shares at Rs 100 each and premium of 20% i.e. Rs 20 is issued making the amount to be Rs 1,80,000. Hence, the amount to be transferred by the company to the Capital Redemption Reserve Account will be Rs 240000- Rs 180000 i.e. Rs 40000.