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Redemption of Debentures

Share premium...

Question

Share premium is utilized for this purpose _______.

A

For raising goodwill

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B

For premium payable on redemption of preference share

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C

For writing of capital losses

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D

For paying dividend

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Solution

The correct option is B For premium payable on redemption of preference share
According to Sec 78 of the Companies Act, share premium account may be applied by the company for:-
1. Issuing to members of the company fully paid bonus shares; or
2. writing off the preliminary expenses of the company; or
3. writing off the expenses of, or the commission paid or discount allowed on issue of shares or debentures of the company; or
4. Providing for the premium payable on the redemption of any redeemable preference shares or debentures.

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Q. When shares are issued at a premium for the purpose of redemption of preference shares, amount of premium can be used for redemption of par value of preference shares.

Q. Solid 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-

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