Question

Where preference shares are redeemed out of profits, a sum equal to the nominal amount of the shares so redeemed must be transferred to____.

• A. Capital Reserve A/c
• B. Capital Redemption Reserve A/c
• C. Capital Profit A/c
• D. Revenue Redemption Reserve A/c

Answer 1

Answer: (B)

Capital Redemption Reserve A/c

Whenever a company redeems its preference shares then the nominal value or face value of the shares is put into capital redemption reserve fund. There after this fund becomes the part of the paid capital of the company. Capital Redemption Revere is also created when a company buys it owns shares which reduces its share capital.