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Question

Which of the following may be utilized by a limited company for the redemption of redeemable preference shares?

A
General Reserve
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B
Dividend Equalisation Fund
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C
Profit and Loss account balance
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D
Workmen Compensation Fund
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E
All of these
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Solution

The correct option is E All of these
The redempton of preference shares is subject to the following restrictions :
  1. Fully paid - Such shares can be redeem only if these are fully paid.
  2. Two sources of redeeming such shares - Such shares can be redeem only out of the following two surces:
(a) Divisible profits, i.e., profits available for distribution as dividend. Some examples of divisible profit are as under -
  • General reseerve
  • Reserve fund
  • Dividend equalisation fund
  • Insurance fund
  • Workmen compensation fund
  • Workmen accident fund
  • Profit and loss account
(b) Proceeds of fresh issue of shares made for the pourpose of redeption.

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