Question

Transfer to Capital redemption reserve can be from ___________.

• A. profit and loss A/c
• B. profit prior to incorporation A/c
• C. share forfeited A/c
• D. capital reserve A/c

Answer 1

The correct option is A profit and loss A/c

Capital redemption reserve is created when capital is redeemed/ bought back.

Capital reserve cannot be used to create Capital Redemption Reserve and hence only free reserve like Profit and Loss A/c balance can be used for transfer to Capital Redemption Reserve.

Profit prior to incorporation is also a Capital profit and hence not used to create the Capital Redemption Reserve. Similarly share forfeiture account also cannot be used for such reserves.