Question

When preference shares are redeemed out of profits, such profits must be_____.

• A. Profits which would otherwise available for dividend
• B. Capital profit
• C. Revaluation profit
• D. (B) or (C)

Answer 1

Answer: (A)

Profits which would otherwise available for dividend

Redemption of preference shares means returning the preference share capital to the preference shareholders either at a fixed date or after a certain time period during the life time of the company provided company must complied certain conditions. Shares can be redeemed out of the profit of the company which would otherwise be available for the dividend; or out of the proceeds of a fresh issue of shares made for the purpose of redemption.