Question

Which of the following conditions should be satisfied to redeem the preference shares?

• A. No such shares be redeemed unless they are fully paid.
• B. Where shares are redeemed out of profits, a sum equal to nominal value of shares redeemed must be transferred to Capital Redemption Reserve.
• C. Capital Redemption Reserve is available only for issue of fully paid bonus shares.
• D. All the above

Answer 1

The correct option is D All the above

No such shares shall be redeemed unless they are fully paid up. The partly paid up shares cannot be redeemed. If they are partly paid in that case a final call be made to convert them from partly paid to fully paid only then redemption can be carried out.

Such shares can be redeemed Out of the profit of the company which would otherwise be available for the dividend Out of the proceeds of a fresh issue of shares made for the purpose of redemption.

If the shares are redeemed out of profits available for the distribution for dividend, a sum equal to the nominal amount of the shares so redeemed must be transferred to reserve account to be called ‘Capital Redemption Reserve Account'.

If preference shares are redeemed at premium, then such premium must be provided either out of the profits of the company or out of the company’s security premium account.

The Capital Redemption Reserve Account can be utilized for the issue of fully paid bonus shares to the shareholders.