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20092018090907893chapter18 RedemptionofPreferenceShares

The document discusses several questions related to the redemption of preference shares by companies. Q1 asks to record journal entries for redeeming 10,000 10% preference shares at par through issuing equity shares at a premium. Q2 calculates the minimum number of equity shares needed to redeem Rs. 500,000 of preference shares given a maximum Rs. 300,000 in profits available for redemption. Q3 provides a company balance sheet and asks to record journal entries for redeeming preference shares at a 10% premium through selling investments, using company funds, and issuing new equity shares. The remaining questions involve additional details but follow a similar pattern of calculating shares needed for redemption and recording related journal entries.

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Abdifatah Said
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184 views2 pages

20092018090907893chapter18 RedemptionofPreferenceShares

The document discusses several questions related to the redemption of preference shares by companies. Q1 asks to record journal entries for redeeming 10,000 10% preference shares at par through issuing equity shares at a premium. Q2 calculates the minimum number of equity shares needed to redeem Rs. 500,000 of preference shares given a maximum Rs. 300,000 in profits available for redemption. Q3 provides a company balance sheet and asks to record journal entries for redeeming preference shares at a 10% premium through selling investments, using company funds, and issuing new equity shares. The remaining questions involve additional details but follow a similar pattern of calculating shares needed for redemption and recording related journal entries.

Uploaded by

Abdifatah Said
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Redemption of Preference Shares AJ Education NeXt

CHAPTER 18. REDEMPTION OF PREFERENCE SHARES

Q1. C Ltd. had 10,000, 10% Redeemable Preference Shares of Rs.100 each, fully paid up. The company
decided to redeem these preference shares at par, by issue of sufficient number of equity shares of Rs.10 each at
a premium of Rs.2 per share as fully paid up. You are required to pass necessary Journal Entries including cash
transactions in the books of the company

Q2. The Board of Directors of a Company decide to issue minimum number of equity shares of Rs.9 to
redeem Rs.5,00,000 preference shares. The maximum amount of divisible profits available for redemption is
Rs.3,00,000. Calculate the number of shares to be issued by the company to ensure that provisions of Section
55 are not violated. Also determine the number of shares if the company decides to issue shares in multiples of
Rs.50 only

Q3. The Balance Sheet of X Ltd. as on 31st March, 20X3 is as follows:


Particulars Rs.
EQUITY AND LIABILITIES
1. Shareholders’ funds a Share capital 2,90,000
b Reserves and Surplus 48,000
2. Current liabilities Trade Payables 56,500
Total 3,94,500
ASSETS
1. Fixed Assets Tangible asset 3,45,000
2. Non-current investments 18,500
3. Current Assets Cash and cash equivalents (bank) 31,000
Total 3,94,500

The share capital of the company consists of Rs.50 each equity shares of Rs.2,25,000 and 100 each Preference
shares of Rs.65,000 (issued on 1.4.20X1). Reserves and Surplus comprises Profit and Loss Account only.
In order to facilitate the redemption of preference shares at a premium of 10%, the Company decided:
(a) to sell all the investments for Rs.15,000.
(b) to finance part of redemption from company funds, subject to, leaving a bank balance of Rs.12,000.
(c) to issue minimum equity share of Rs.50 each at a premium of Rs.10 per share to raise the balance of
funds required.
You are required to pass: The necessary Journal Entries to record the above transactions and prepare the
balance sheet as on completion of the above transactions.

Q4. C Limited had 3,000, 12% Redeemable Preference Shares of Rs.100 each, fully paid up. The company
had to redeem these shares at a premium of 10%. It was decided by the company to issue the following: (i)
25,000 Equity Shares of Rs.10 each at par, (ii) 1,000 14% Debentures of Rs.100 each. The issue was fully
subscribed and all amounts were received in full .The payment was duly made. The company had sufficient
profits. Show Journal Entries in the books of the company.

Q5. The capital structure of a company consists of 20,000 Equity Shares of Rs.10 each fully paid up and
1,000 8% Redeemable Preference Shares of Rs.100 each fully paid up (issued on 1.4.20X1). Undistributed
reserve and surplus stood as: General Reserve Rs.80,000; Profit and Loss Account Rs.20,000; Investment
Allowance Reserve out of which Rs.5,000, (not free for distribution as dividend) Rs.10,000; Securities
Premium Rs.2,000, Cash at bank amounted to Rs.98,000. Preference shares are to be redeemed at a Premium of
10% and for the purpose of redemption, the directors are empowered to make fresh issue of Equity Shares at
par after utilising the undistributed reserve and surplus, subject to the conditions that a sum of Rs.20,000 shall
be retained in general reserve and which should not be utilised. Pass Journal Entries to give effect to the above
arrangements and also show how the relevant items will appear in the Balance Sheet of the company after the
redemption carried out

18.1
Redemption of Preference Shares AJ Education NeXt

Q6. The Balance Sheet of XYZ as at 31st December, 20X1 inter alia includes the following: Rs. 50,000, 8%
Preference Shares of Rs.100 each, Rs.70 paid up 35,00,000 1,00,000 Equity Shares of Rs.100 each fully paid up
1,00,00,000 Securities Premium 5,00,000 Capital Redemption Reserve 20,00,000 General Reserve 50,00,000
Under the terms of their issue, the preference shares are redeemable on 31st March, 20X2 at 5% premium. In
order to finance the redemption, the company makes a rights issue of 50,000 equity shares of Rs.100 each at
Rs.110 per share, Rs.20 being payable on application, Rs.35 (including premium) on allotment and the balance
on 1st January, 20X3. The issue was fully subscribed and allotment made on 1st March, 20X2. The money due
on allotment were received by 31st March, 20X2. The preference shares were redeemed after fulfilling the
necessary conditions of Section 55 of the Companies Act, 2013. You are asked to pass the necessary Journal
Entries and show the relevant extracts from the balance sheet as on 31st March, 20X2 with the corresponding
figures as on 31st December, 20X1.
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18.2

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