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Reserves and Surplus

Which of the ...

Question

Which of the following profits/reserves can not be used for redemption of preference shares?

A

Dividend Equalisation Reserve

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B

General Reserve

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C

Profit and Loss Account

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D

Security Premium

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Solution

The correct option is D Security Premium
(i) Redeemable preference shares can be redeemed either at par or at premium.
ii) If the shares are redeemed at a premium, it should be should be provided out of securities premium or profit and loss account or general reserve account.
iii) The proceeds from fresh issue of debentures cannot be utilized for redemption.

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