{"id":8551,"date":"2024-02-24T01:55:13","date_gmt":"2024-02-23T20:25:13","guid":{"rendered":"https:\/\/gstguntur.com\/?p=8551"},"modified":"2024-02-26T09:42:47","modified_gmt":"2024-02-26T04:12:47","slug":"introduction-to-company-accounts-redemption-of-preference-shares-cs-foundation-fundamentals-of-accounting-notes","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/introduction-to-company-accounts-redemption-of-preference-shares-cs-foundation-fundamentals-of-accounting-notes\/","title":{"rendered":"Introduction to Company Accounts-Redemption of Preference Shares \u2013 CS Foundation Fundamentals of Accounting Notes"},"content":{"rendered":"<p>Go through this Introduction to Company Accounts-Redemption of Preference Shares &#8211; <a href=\"https:\/\/gstguntur.com\/cs-foundation-fundamentals-of-accounting-and-auditing-notes\/\">CS Foundation Fundamentals of Accounting and Auditing Notes<\/a> will help students in revising the entire subject quickly.<\/p>\n<p>Meaning:<\/p>\n<ul>\n<li>it refers to the process of repaying an obligation, at amounts and timings that are pre decided.<\/li>\n<li>Redemption date means the maturity date.<\/li>\n<li>Company adjusts its financial structure through the process of redemption.<\/li>\n<\/ul>\n<p>Purpose of Issuing Redeemable Preference Shares:<\/p>\n<ul>\n<li>Provides a proper way of raising finance.<\/li>\n<li>Encourages the potential investors to buy redeemable shares<\/li>\n<li>Redeemed out of surplus capital which cannot be utilised for profitable purpose.<\/li>\n<li>Medium term projects generates enough funds which enables their redemption.<\/li>\n<\/ul>\n<p>Provisions of Companies Act, 2013 (Section 55):<br \/>\n1. No shares can be redeemed except (I) out of profits which are available for dividends or, (II) out of proceeds of fresh issue of shares made for redemption purpose.<br \/>\nOnly fully paid shares can be redeemed.<\/p>\n<p>2. If any premium has to be paid on redemption, it must be paid (I) out of company\u2019s profit or (II) out of company\u2019s share premium account. (Securities Premium)<\/p>\n<p>3. If shares are redeemed out of profits, a sum equal to nominal value of shares redeemed must be transferred out of profits to Capital Redemption Reserve Account which would otherwise have been available for dividend.<br \/>\nNote: Its main objective is that with the repayment of redeemable preference shares, the creditors security should not be reduced.<\/p>\n<p>5. Capital Redemption Reserve Account can be utilised only for paying unissued shares as fuily paid bonus shares.<\/p>\n<p>6. According to Section 55 of Companies Act, 2013 a company cannot issue any preference share which is redeemable or irredeemable after expiry of 20 years from the date of its issue. A company may issue preference shares for a period exceeding 20 years but not exceeding 30 years for infrastructure projects (specified in Schedule VI) However, it is subject to redemption of minimum 10% of such preference shares per year from 21<sup>st <\/sup>year onwards or earlier, on proportionate basis, at the option of preference shareholders.<\/p>\n<p>7. When the company redeems preference shares then it can issue shares upto the amount of nominal value of shares redeemed as if those shares have never been issued.<\/p>\n<p>8. Redemption does not mean reduction of company\u2019s authorised share capital.<\/p>\n<p>9. Issue of new equity shares for the purpose of redemption does not mean increase of capital.<\/p>\n<p>10. Non-compliance of above provisions leads to a default which is punishable with a fine extending to ? 10,000.<\/p>\n<p>Methods of Redemption:<\/p>\n<ul>\n<li>By proceeds of a fresh issue of shares<\/li>\n<li>By capitalisation of undistributed profits<\/li>\n<li>By combination of the above two<\/li>\n<\/ul>\n<p>Redemption of Preference Shares by Fresh Issue of Shares:<br \/>\n1. Company can issue new shares i.e. equity or preference and proceeds are utilised for redemption.<br \/>\nNote: Proceeds from issue of debentures cannot be used for redemption.<\/p>\n<p>2. If fresh issue is made at a premium: Only nominal value of shares issued should be considered for transferring amount to CRR A\/c. Note: The amount of premium has to be transferred to Securities Premium A\/c which can be utilised only for purposes mentioned u\/s 52<\/p>\n<p>3. if fresh issue is made at a discount &#8211; As per Companies Act 2013, fresh issue cannot be made on discount.<\/p>\n<table border=\"2\">\n<tbody>\n<tr>\n<td>Advantages<\/td>\n<td>Disadvantages<\/td>\n<\/tr>\n<tr>\n<td>(i) No cash outflow.<br \/>\n(ii) Shares can be valued at premium.<br \/>\n(iii) No capital gain tax.<br \/>\n(iv) Retention of equity interest by shareholders.<\/td>\n<td>(i) Dilution of earnings.<br \/>\n(ii) Change in Shareholdings.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Journal Entries:<br \/>\n(I) When new shares are issued at par<br \/>\nBank A\/c Dr.<br \/>\nTo Share Capital A\/c<\/p>\n<p>(II) When new shares are issued at a premium<br \/>\nBank A\/c Dr.<br \/>\nTo Share Capital A\/c To Securities Premium A\/c<\/p>\n<p>(III) Redemption at par<br \/>\nRedeemable Preference Share Capital A\/c Dr.<br \/>\nTo Preference Shareholders A\/c<\/p>\n<p>(IV) Redemption at premium<br \/>\nRedeemable Preference Share Capital A\/c Dr.<br \/>\nPremium on Redemption A\/c Dr.<br \/>\nTo Preference Shareholders A\/c<\/p>\n<p>(V) When payment is made to Preference Shareholders<br \/>\nPreference Shareholders A\/c Dr.<br \/>\nTo Bank A\/c<\/p>\n<p>(Vi) Adjustment of Premium on Redemption<br \/>\nProfit and Loss A\/c Dr.<br \/>\nSecurities Premium A\/c Dr.<br \/>\nTo Premium on Redemption of Preference Shares A\/c<\/p>\n<p>Redemption of preference shares by capitalisation of undistributed profits:<br \/>\nIn this case, an amount equal to the face value of shares redeemed is transferred to CRR A\/c.<\/p>\n<table border=\"2\">\n<tbody>\n<tr>\n<td>Advantages<\/td>\n<td>Disadvantages<\/td>\n<\/tr>\n<tr>\n<td>(i) No change in shareholdings.<br \/>\n(ii) No dilution of earnings.<\/td>\n<td>(i) Reduction in liquidity<br \/>\n(ii) Capital gain tax liability<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Journal Entries:<br \/>\n(I) When Shares are redeemed at par<br \/>\nRedeemable Preference Share Capital A\/c Dr.<br \/>\nTo Preference Shareholders A\/c<\/p>\n<p>(II) When Shares are redeemed at Premium<br \/>\nRedeemable Preference Share Capital A\/c Dr.<br \/>\nPremium on Redemption A\/c Dr.<br \/>\nTo Preference Shareholders A\/c<\/p>\n<p>(III) When payment is made to Preference Shareholders<br \/>\nPreference Shareholders A\/c Dr.<br \/>\nTo Bank A\/c<\/p>\n<p>(IV) Adjustment of Premium on Redemption<br \/>\nProfit and Loss A\/c Dr.<br \/>\nSecurities Premium A\/c Dr.<br \/>\nTo Premium on Redemption A\/c<\/p>\n<p>(V) Transferring nominal amount of shares redeemed to Capital<br \/>\nRedemption Reserve Account (CRR)<br \/>\nGeneral Reserve A\/c Dr.<br \/>\nProfit and Loss A\/c Dr.<br \/>\nTo CRR A\/c<\/p>\n<p>Redemption of Preference Shares by Combination of Fresh Issue and Capitalisation of Undistributed Profits<br \/>\n\u2192 In this case,<\/p>\n<p>\u2192 Redeemable Pref. Share Capital<br \/>\n= CRR A\/c + New Share Capital A\/c<\/p>\n<p>\u2192 Amount to be transferred to CRR A\/c<br \/>\n= Face value of shares redeemed &#8211; Proceeds from new issue.<\/p>\n<p>\u2192 Proceeds to be collected from New Issue<br \/>\n= Face value of shares redeemed &#8211; Profits available for distribution as dividend.<\/p>\n<p><strong>Introduction to Company Accounts-Redemption of Preference Shares MCQ Questions<\/strong><\/p>\n<p>1. According to Sec-55 of Companies Act, 2013, a company cannot redeem its preference shares out of:<br \/>\n(a) Revenue Profits<br \/>\n(b) Net proceeds of fresh issue of shares<br \/>\n(c) Partly out of revenue profits and partly out of net proceeds of fresh issue of shares<br \/>\n(d) Out of redemption of debentures<br \/>\nAnswer:<br \/>\n(d) Out of redemption of debentures<\/p>\n<p>2. Redeemable preference shares of \u20b9 2,00,000 are redeemed at par for which purpose, fresh equity shares are issued for \u20b9 80,000 at 10% premium.<br \/>\nThe amount to be transferred to Capital Redemption Reserve will be:<br \/>\n(a) \u20b9 80,000<br \/>\n(b) \u20b9 1,20,000<br \/>\n(c) \u20b9 2,00,000<br \/>\n(d) \u20b9 1,12,000<br \/>\nAnswer:<br \/>\n(b) \u20b9 1,20,000<\/p>\n<p>3. Which of the following accounts can be transferred to Capital Redemption Reserve A\/c?<br \/>\n(a) General Reserve A\/c<br \/>\n(b) Forfeited Share A\/c<br \/>\n(c) Profit prior to incorporation<br \/>\n(d) Share Premium A\/c<br \/>\nAnswer:<br \/>\n(a) General Reserve A\/c<\/p>\n<p>4. Which of the following cannot be used for the purpose of creation of Capital Redemption Reserve A\/c?<br \/>\n(a) Credit Balance of Profit\/Loss Account<br \/>\n(b) General Reserve Account<br \/>\n(c) Dividend Equalisation Reserve Account<br \/>\n(d) Unclaimed Dividend Account<br \/>\nAnswer:<br \/>\n(d) Unclaimed Dividend Account<\/p>\n<p>5. If preference shares are redeemed at premium, such premium may be provided out of:<br \/>\n(a) Share Forfeited A\/c<br \/>\n(b) Security Premium A\/c<br \/>\n(c) Proceeds of fresh issue of shares<br \/>\n(d) CRR A\/c<br \/>\nAnswer:<br \/>\n(b) Security Premium A\/c<\/p>\n<p>6. S Ltd. issued 2000, 10% preference shares of \u20b9100 each at par, which are redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500 equity shares of \u20b9 100 each at a premium of 10%. At the time of redemption of preference shares, the amount to be transferred by the company to CRR will be:<br \/>\n(a) \u20b9 50,000<br \/>\n(b) \u20b9 45,000<br \/>\n(c) \u20b9 55,000<br \/>\n(d) \u20b9 60,000<br \/>\nAnswer:<br \/>\n(a) \u20b9 50,000<\/p>\n<p>7. T Ltd. issued 30,000 12% preference shares of \u20b910 each at a premium of 5% which are redeemable at par. The company, since it did not have sufficient cash resources to redeem the preference shares, issued 20,000,14% debentures of 0 each at a premium of 10%. The amount to be transferred to CRR will be:<br \/>\n(a) \u20b9 85,000<br \/>\n(b) \u20b9 1,00,000<br \/>\n(c) \u20b9 3,00,000<br \/>\n(d) \u20b9 1,10,000<br \/>\nAnswer:<br \/>\n(c) \u20b9 3,00,000<\/p>\n<p>8. Preference shares amounting to \u20b9 2,50,000 are redeemed at a premium of 5% by issue of shares amounting to \u20b9 1,50,000 at a premium of 10%. The amount to be transferred to CRR will be:<br \/>\n(a) \u20b9 1,05,000<br \/>\n(b) \u20b9 1,00,000<br \/>\n(c) \u20b9 2,00,000<br \/>\n(d) \u20b9 1,11,000<br \/>\nAnswer:<br \/>\n(b) \u20b9 1,00,000<\/p>\n<p>9. The balance appearing in the books of company at the end of the year were: CRR A\/c- \u20b9 50,000, Security Premium \u20b9 5,000 Revaluation Reserve &#8211; \u20b9 2,000; P\/L A\/c (Dr.) 10,000, maximum amount available for distribution as bonus shares will be __________.<br \/>\n(a) \u20b9 50,000<br \/>\n(b) \u20b9 55,000<br \/>\n(c) \u20b9 45,000<br \/>\n(d) \u20b9 57,000<br \/>\nAnswer:<br \/>\n(b) \u20b9 55,000<\/p>\n<p>10. Which of the following method cannot be used to redeem the preference shares?<br \/>\n(a) Capitalisation of undistributed profits<br \/>\n(b) Proceeds of fresh issue of shares<br \/>\n(c) Both (a) and (b)<br \/>\n(d) The proceeds from issue of debentures<br \/>\nAnswer:<br \/>\n(d) The proceeds from issue of debentures<\/p>\n<p>11. Which of the following statement is false?<br \/>\n(a) A company has to redeem its preference shares within 20 years.<br \/>\n(b) Preference Shareholders are creditors of the company.<br \/>\n(c) The part of authorised capital which can be called up only in the event of liquidation of a company is called reserve capital.<br \/>\n(d) Capital Redemption Reserve can be utilized only for issuing fully paid bonus shares.<br \/>\nAnswer:<br \/>\n(c) The part of authorised capital which can be called up only in the event of liquidation of a company is called reserve capital.<\/p>\n<p>12. On redemption of preference shares, money cannot be arranged (for payment to shareholders) from __________.<br \/>\n(a) issue of new shares<br \/>\n(b) sale of investment<br \/>\n(c) sale of fixed asset<br \/>\n(d) bank loan or overdraft<br \/>\nAnswer:<br \/>\n(d) bank loan or overdraft<\/p>\n<p>13. Share premium cannot be used to __________.<br \/>\n(a) issue bonus shares<br \/>\n(b) redeem preference shares<br \/>\n(c) write off preliminary expenses<br \/>\n(d) write off discount on issue of shares<br \/>\nAnswer:<br \/>\n(b) redeem preference shares<\/p>\n<p>14. Preference shares can be redeemed:<br \/>\n(a) Even if they are partly paid<br \/>\n(b) After getting permission from the court only<br \/>\n(c) Only if they are fully paid<br \/>\n(d) All of the above<br \/>\nAnswer:<br \/>\n(c) Only if they are fully paid<\/p>\n<p>15. The preference share which carry the right of participating jn the surplus left after paying the equity dividend are called:<br \/>\n(a) Convertible Preference Shares<br \/>\n(b) Cumulative Preference Shares<br \/>\n(c) Participating Preference Shares<br \/>\n(d) All of the above<br \/>\nAnswer:<br \/>\n(c) Participating Preference Shares<\/p>\n<p>16. Redeemable preference shares must be redeemed within:<br \/>\n(a) 5 years<br \/>\n(b) 20 years<br \/>\n(c) 15 years<br \/>\n(d) 10 years<br \/>\nAnswer:<br \/>\n(b) 20 years<\/p>\n<p>17. Irredeemable preference shares:<br \/>\n(a) Cannot be issued at all<br \/>\n(b) Can be issued only after taking permission from the ROC<br \/>\n(c) Can be issued after taking approval of the Central Government<br \/>\n(d) Can be issued after obtaining the permission of the court<br \/>\nAnswer:<br \/>\n(a) Cannot be issued at all<\/p>\n<p>18. \u20b9 10,00,000 preference shares are to be redeemed by issue of 8,000 equity shares @ \u20b9 100 each for \u20b9 120 each. Then, the Capital Redemption Reserve is to be credit by:<br \/>\n(a) \u20b9 4,00,000<br \/>\n(b) \u20b9 10,00,000<br \/>\n(c) \u20b9 8,00,000<br \/>\n(d) \u20b9 2,00,000<br \/>\nAnswer:<br \/>\n(d) \u20b9 2,00,000<\/p>\n<p>19. Preference shares can be redeemed from:<br \/>\n(a) Out of profits<br \/>\n(b) Proceeds of fresh issue of equity shares<br \/>\n(c) Proceeds of fresh issue of preference shares<br \/>\n(d) All of the above<br \/>\nAnswer:<br \/>\n(d) All of the above<\/p>\n<p>20. If the preference shares are redeemed at a premium, then the premium payable on redemption is provided out of:<br \/>\n(a) Securities Premium Account<br \/>\n(b) Profits of the Company<br \/>\n(c) Both (a) and (b)<br \/>\n(d) Neither (a) nor (b)<br \/>\nAnswer:<br \/>\n(c) Both (a) and (b)<\/p>\n<p>21. When the shares are redeemed out of profits then an amount equal to the nominal value of such shares is transferred to:<br \/>\n(a) General Reserve<br \/>\n(b) Capital Redemption Reserve<br \/>\n(c) Capital Reserve<br \/>\n(d) Securities Premium<br \/>\nAnswer:<br \/>\n(b) Capital Redemption Reserve<\/p>\n<p>22. The maximum fine which can be charged on the company or its members for non compliance of section 55 is:<br \/>\n(a) \u20b9 1,00,000<br \/>\n(b) \u20b9 10,000<br \/>\n(c) \u20b9 5,000<br \/>\n(d) \u20b9 25,000<br \/>\nAnswer:<br \/>\n(b) \u20b9 10,000<\/p>\n<p>23. Which of the following statement is false?<br \/>\n(a) Capital Redemption Reserve can be applied for issuing bonus shares of the company<br \/>\n(b) Partly paid up shares can be redeemed<br \/>\n(c) Both (a) and (b)<br \/>\n(d) Neither (a) nor (b)<br \/>\nAnswer:<br \/>\n(b) Partly paid up shares can be redeemed<\/p>\n<p>24. A company cannot issue redeemable preference shares for a period exceeding:<br \/>\n(a) 6 Years<br \/>\n(b) \u20b9 Years<br \/>\n(c) 8 Years<br \/>\n(d) 20 Years.<br \/>\nAnswer:<br \/>\n(d) 20 Years.<br \/>\nAccording to Sec 55 of Companies Act, 2013 a company cannot issue any preference share, which is irredeemable or is redeemable after the expiry of a period of twenty years from the date of its issue.<\/p>\n<p>25. Solid Ltd. issued 2,000, 10% preference shares of \u20b9 100 each at par, which are redeemable at a premium of 10%. For the purpose of redemption, the company issued 1,500 equity shares of \u20b9 100 each at a premium of 20% per share. At the time of redemption of preference shares, the amount to be transferred by the company to the Capital Redemption Reserve Account will be __________.<br \/>\n(a) \u20b9 50,000<br \/>\n(b) \u20b9 40,000<br \/>\n(c) \u20b9 2,00,000<br \/>\n(d) \u20b9 2,20,000<br \/>\nAnswer:<br \/>\n(a) \u20b9 50,000<br \/>\nAmount to be transferred to Capital Redemption Reserve:<br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-8554\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Introduction-to-Company-Accounts-Redemption-of-Preference-Shares-\u2013-CS-Foundation-Fundamentals-of-Accounting-Notes-1.png\" alt=\"Introduction to Company Accounts-Redemption of Preference Shares \u2013 CS Foundation Fundamentals of Accounting Notes 1\" width=\"373\" height=\"101\" srcset=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Introduction-to-Company-Accounts-Redemption-of-Preference-Shares-\u2013-CS-Foundation-Fundamentals-of-Accounting-Notes-1.png 373w, https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Introduction-to-Company-Accounts-Redemption-of-Preference-Shares-\u2013-CS-Foundation-Fundamentals-of-Accounting-Notes-1-300x81.png 300w\" sizes=\"(max-width: 373px) 100vw, 373px\" \/><br \/>\nThus, amount of Capital Redemption Reserve Account will be \u20b9 50,000.<\/p>\n<p>26. Which of the following accounts can not be transferred to capital redemption reserve account?<br \/>\n(a) Dividend equalisation account<br \/>\n(b) General reserves<br \/>\n(c) Profit and loss appropriation account.<br \/>\n(d) Securities premium reserves.<br \/>\nAnswer:<br \/>\n(d) Securities premium reserves.<br \/>\nWhenever the redemption or buy-back of shares is made out of the profits of the company, a sum equal to the nominal amount of the shares to be redeemed, shall be transferred to a reserve called the Capital Redemption Reserve Account. For this purpose, following accounts are used:<\/p>\n<ul>\n<li>General Reserves<\/li>\n<li>Profit &amp; Loss Appropriation A\/c<\/li>\n<li>Dividend Equalization A\/c<\/li>\n<li>Other free Reserves<\/li>\n<\/ul>\n<p>Hence, Securities premium reserves cannot be transferred.<\/p>\n<p>27. Which of the following cannot be utilized for redemption of preference share?<br \/>\n(a) General Reserve<br \/>\n(b) Capital Reserve<br \/>\n(c) Credit balance of profit and loss account<br \/>\n(d) Dividend equalisation account.<br \/>\nAnswer:<br \/>\n(b) Capital Reserve<br \/>\nAt the time of redemption of Preference Shares, capital redemption reserve is to be created. Since it is a capital reserve, it can be created only out of revenue profits. Hence, capital reserve cannot be used for redemption of preference share.<\/p>\n<p>28. Solid Ltd. issued 2000, 10% preference shares of \u20b9 100 each at par, which are redeemable at a premium of 10% for the purpose of redemption the company issued 1500 equity shares of \u20b9 100 each at a premium of 20% per share. At the time of redemption of preference shares, the amount to be transferred by the company to the capital redemption reserve account will be __________.<br \/>\n(a) \u20b9 50,000<br \/>\n(b) \u20b9 2,20,000<br \/>\n(c) \u20b9 2,00,000<br \/>\n(d) \u20b9 40,000<br \/>\nAnswer:<br \/>\n(a) \u20b9 50,000<br \/>\nIf the redeemable preference share are redeemed partly out of profits of company and partly out of fresh issue of shares equity or preference. Then Capital Redemption Reserve Account is created with the amount of difference between share capital redeemed and share capital account.<br \/>\nCapital Redemption Reserve = 2,000 x 100\/-<br \/>\nPreference Share &#8211; 1500 x 100\/- New equity share<br \/>\nCapital Redemption Reserve = 2,00,000 &#8211; 1,50,000<br \/>\n= \u20b9 50,000<\/p>\n<p>29. Capital Redemption Reserve A\/c is prepared when __________.<br \/>\n(a) Redemption is done out of issue of fresh shares<br \/>\n(b) Redemption is done out of profit of the company<br \/>\n(c) Redemption is done through company\u2019s capital fund<br \/>\n(d) All of the above<br \/>\nAnswer:<br \/>\n(b) Redemption is done out of profit of the company<br \/>\nWhenever a company redeems its preference shares. Then the nominal value or face value of the shares is put into capital redemption reserve fund. It is transferred from the undistributed profits i.e. general reserve, profit or loss account.<\/p>\n<p>30. During the year 2008-2009. Tin Ltd. issued 20,000, 12% preference shares of \u20b9 10 each at a premium of 5%, which are redeemable after 4 years at par. During the year 2012-2013, as the company did not have sufficient cash resources to redeem the preference shares, it issued 10,000, 14% preference shares of \u20b9 10 each at a premium of 10%. At the time of redemption of 12% preference shares, the amount to be transferred to capital redemption reserve would be:<br \/>\n(a) \u20b9 2,00,000<br \/>\n(b) \u20b9 1,10,000<br \/>\n(c) \u20b9 90,000<br \/>\n(d) \u20b9 1,00,000<br \/>\nAnswer:<br \/>\n(d) \u20b9 1,00,000<br \/>\nWhen preference shares are to be redeemed out of profit, a sum equal to the nominal value of shares redeemed out of profit shall be transferred to Capital Redemption Reserve A\/c.<\/p>\n<p>31. A company cannot issue redeemable preference shares for a period exceeding __________.<br \/>\n(a) 6 years<br \/>\n(b) 7 years<br \/>\n(c) 8 years<br \/>\n(d) 20 years<br \/>\nAnswer:<br \/>\n(d) 20 years<br \/>\nA company cannot issue redeemable preference shares for a period exceeding 20 years and for infrastructure projects, redeemable preference shares issued for 25 to 30 years.<\/p>\n<p>32. S Ltd. issued 8,000,10% preference shares of \u20b9 100 each at par which is redeemable at premium of 10% company issued 1500 equity shares of \u20b9 100 each @ 20% premium per share. The amount transferred by company to CRR A\/c will be.<br \/>\n(a) \u20b9 1,50,000<br \/>\n(b) \u20b9 2,00,000<br \/>\n(c) \u20b9 2,50,000<br \/>\n(d) None of the above<br \/>\nAnswer:<br \/>\n(a) \u20b9 1,50,000<br \/>\nIf preference shares are proposed to be redeemed out of the profits of the company, a sum equal to the nominal amount of shares to be redeemed shall be transferred to a reserve called Capital Redemption Reserve. In following question; company issued 1500 equity shares at premium amount of \u20b9 100 per each with 20% premium respectively.<br \/>\nNominal value of share: 1500 x 100 = \u20b9 1,50,000, Thus, option (a) is correct.<\/p>\n<p>33. Solid Ltd. issued 2,000, 10% preference shares of \u20b9 100 each at par, which are redeemable at a premium of 10%, for the purpose of redemption, the company issued 1,500 equity shares of \u20b9 100 each at a premium of 20% per share. At the time of redemption of preference shares, the amount to be transferred by the company to the capital Redemption Reserve Account will be:<br \/>\n(a) \u20b9 50,000<br \/>\n(b) \u20b9 40,000<br \/>\n(c) \u20b9 2,00,000<br \/>\n(d) \u20b9 2,20,000<br \/>\nAnswer:<br \/>\n(a) \u20b9 50,000<br \/>\nAt the time of redemption of preference shares, replacement of capital to be effected is equal to the nominal value of preference shares redeemed.<br \/>\nNominal Value of Equity Issue = 1500 x 100<br \/>\n= 1,50,000<br \/>\n\u2234 CRR to be created is \u20b9 50,000<\/p>\n<p>34. Preference shares cannot be redeemed after?<br \/>\n(a) 10 years<br \/>\n(b) 20 years<br \/>\n(c) 50 years<br \/>\n(d) 5 years<br \/>\nAnswer:<br \/>\n(b) 20 years<br \/>\nA company may issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue under section 55 of the Companies Act, 2013. The company should be authorized by its articles.<\/p>\n<p>35. \u2018A\u2019 company purchase land for \u20b9 1,00,000 and paid debenture of \u20b9 10 each at 10% premium. Find number of debenture issued?<br \/>\n(a) 50,000<br \/>\n(b) 5,000<br \/>\n(c) 10,000<br \/>\n(d) None<br \/>\nAnswer:<br \/>\n(b) 5,000<br \/>\n<img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-8555\" src=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Introduction-to-Company-Accounts-Redemption-of-Preference-Shares-\u2013-CS-Foundation-Fundamentals-of-Accounting-Notes-2.png\" alt=\"Introduction to Company Accounts-Redemption of Preference Shares \u2013 CS Foundation Fundamentals of Accounting Notes 2\" width=\"394\" height=\"166\" srcset=\"https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Introduction-to-Company-Accounts-Redemption-of-Preference-Shares-\u2013-CS-Foundation-Fundamentals-of-Accounting-Notes-2.png 394w, https:\/\/gstguntur.com\/wp-content\/uploads\/2021\/10\/Introduction-to-Company-Accounts-Redemption-of-Preference-Shares-\u2013-CS-Foundation-Fundamentals-of-Accounting-Notes-2-300x126.png 300w\" sizes=\"(max-width: 394px) 100vw, 394px\" \/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Go through this Introduction to Company Accounts-Redemption of Preference Shares &#8211; CS Foundation Fundamentals of Accounting and Auditing Notes will help students in revising the entire subject quickly. Meaning: it refers to the process of repaying an obligation, at amounts and timings that are pre decided. Redemption date means the maturity date. Company adjusts its &hellip;<\/p>\n<p class=\"read-more\"> <a class=\"\" href=\"https:\/\/gstguntur.com\/introduction-to-company-accounts-redemption-of-preference-shares-cs-foundation-fundamentals-of-accounting-notes\/\"> <span class=\"screen-reader-text\">Introduction to Company Accounts-Redemption of Preference Shares \u2013 CS Foundation Fundamentals of Accounting Notes<\/span> Read More &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"spay_email":"","footnotes":""},"categories":[159],"tags":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/8551"}],"collection":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/comments?post=8551"}],"version-history":[{"count":4,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/8551\/revisions"}],"predecessor-version":[{"id":8563,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/posts\/8551\/revisions\/8563"}],"wp:attachment":[{"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/media?parent=8551"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/categories?post=8551"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gstguntur.com\/wp-json\/wp\/v2\/tags?post=8551"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}