Hfa Unit 2

SAHAS Institute :- 11th 12th Comm // F.Y – S.Y, - T.Y. B.Com // C.A & C.
S [All Levels] Page 1 of 14
11th 12th (Eng. Med)

F.Y S.Y. T.Y. B.COM
C.A. & C.S ( All levels)
E-107, Vrundavan Township, Harni Road, Near Sangam, Vadodara. M : 99989 84152, 82384 48020
FF 9 Sharnam Complex , Opp. Shivay Hotel , Near Crystal School , Waghodia Dabhoi Road.
S.Y.B.Com [ Sem 3 ] Higher Financial Accounting Unit 2

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Ch 1. Redemption of Preference Shares .
Topic 1 :- Basic Understanding & Meaning.
# Basic Understanding :-
# In Simple Words,
“Redemption means Return of Money by Company”
:- A company limited by shares may, if so authorized by its articles, issue preference shares
which are liable to be Redeemed within a period not exceeding 20 years
from the date of their issue under section 55 of the Companies ACT 2013.
:- Company can not issue any preference shares which are irredeemable.
:- 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 the twenty-first year onwards or earlier,
on proportionate basis, at the option of the preference shareholders.
# Meaning of Preference Shares :-
:- Shares Which gives Preferential Rights to its Holder in ….
(a) Payment of Dividend
(b) Repayment of Capital ….. called “Preference Shares”
# Redemption of Preference Shares :-
:- The preference shares can be redeemed only when they are Fully paid up.
[a] Out of the profits of the company which would otherwise be available for dividend or
[b] Out of the proceeds of a fresh issue of shares made for the purpose of such redemption.
# Capital Redemption Reserve Account :- Download

:- If preference shares are Proposed to be redeemed 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 [ CRR ]
out of the profits which would otherwise be available for declaration of dividend.
# Note :- CRR can also be used only for issuing fully paid bonus shares. { For MCQ }
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SAHAS Institute :- 11th 12th Comm // F.Y – S.Y, - T.Y. B.Com // C.A & C.S [All Levels] Page 2 of 14
Topic 2 :- Premium on Redemption of Preference Shares .

[A] For the companies whose financial statements comply with the accounting standards
as prescribed under section 133,
the premium payable on redemption shall be provided out of the profits of the company,
before the shares are redeemed.
[B] For redemption of any preference shares issued on or before the commencement of 2013 Act,
[a] the premium payable on redemption shall be provided out of the profits of the company, or
[b] Out of the company's securities premium account, = before such shares are redeemed.
[C] For the companies whose financial statements need not comply with the accounting standards
as prescribed under section 133, { Same as Point B }
[a] the premium payable on redemption shall be provided out of the profits of the company, or
[b] out of the company's securities premium account, = before such shares are redeemed.
# For Knowledge :- # Forfeiture & Cancellation of Shares due to Unpaid Calls :-
:- Even after Proper notice from the company, the shareholders fail to pay the unpaid calls,
the Board of Directors may decide to forfeit the shares and Cancel these shares
instead of reissuing the forfeited shares
Because redemption of these shares is due immediately or in near future.
:- In this case, entry for forfeited is passed as usual
:- While arranging funds for redemption,
Amount actually payable to shareholder is taken into consideration.
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Topic 3 :- Methods of Redemption :- .
→ The "gap" created in the company's capital
by the redemption of redeemable preference shares must be filled-in by :
{A} the proceeds of fresh issue of shares. (Equity or Preference)
{B} the capitalisation of undistributed profits; or
{C} a combination of (A) and (B).
{A} Fresh Issue of Shares :-
:- A company can issue new shares (equity shares or preference shares) and
the Proceeds from such new shares can be used for redemption of preference shares.
# However, the Proceeds from issue of Debentures cannot be utilised for this purpose.
→ The Proceeds of fresh issue means:
(a) Issue of shares of Par { Nominal value of shares issued = used }
(b) Issue of shares at Premium { Nominal Value of shares issued = used }
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{B} Capitalisation of Undistributed Profit :- Download
:- Another method for redemption of preference shares, allowed by the Companies Act, is
to use the Distributable profits instead of issuing new shares.
# When share are redeemed by utilising distributable profit,
An amount equal to the face value of shares Redeemed
is transferred to capital redemption reserve account by taking out of the distributable profit.
:- In other words, some of the distributable profits are `frozen' to ensure that
it can never be distributed to shareholders as dividend in cash.
:- In this connection, the provision of section 80(1) (d) of the Companies Act is very important.
:- This section states that { Already discussed above }
"When any such shares are redeemed otherwise than out of the proceeds of a fresh issue,
there shall, out of profits which would otherwise have been available for dividend,
be Transferred to a fund, called the capital redemption reserve account,
a sum equal to the Nominal amount of the shares redeemed...."
Profits otherwise available for dividend Profit not available for dividend
(Transfer to capital redemption reserve account (Transfer-to capital redemption reserve account
is ALLOWED from these Profit) is NOT ALLOWED from these profits)
1.] General Reserve 1.] Security premium account
2.] Reserve fund 2.] Forfeited share account
3.] Dividend equalisation fund 3.] Profit prior to incorporation
4.] Workmen's compensation fund 4.] Capital Reserve
5.] Workmen's accident fund 5.] Revaluation Reserve
6.] Profit & Loss Account (Cr. Bal.)
# ACCOUNTING ENTRIES #
Date Particulars L.F. Debit Credit

1. When shares are redeemed at par.
Redeemable Preference Share Capital A/c. Dr. xxx
To Preference Shareholders' A/c. xxx
(Being the amount payable on redemption transferred
to Preference Shareholders Account).
{ OR }
1. When shares are redeemed at a premium
Redeemable Preference Share Capital A/c. Dr. xxx
Premium on Redemption of Pref. Shares A/c. Dr. xxx
To Preference Shareholders' A/c. xxx
(Being the amount payable redemption including
premium transferred to Pre. Shareholders Account.)
2. When payment is made to Preference Shareholders
Preference Shareholders A/c. Dr. xxx
To Bank A/c. xxx
(Being the payment made to preference shareholders
as per terms of redemption)
3. For adjustment of premium on redemption.
Securities Premium A/c. Dr. xxx
Profit & Loss A/c. Dr. xxx
To Premium on Redemption of Pref. Shares A/c. Xxx
(Being the premium on redemption adjusted against
profit and loss account and share premium account.)
4. For transferring nominal amount of shares
redeemed to capital redemption reserve account
General Reserve A/c. Dr. xxx
Profit & Loss A/c. Dr. xxx
To Capital Redemption Reserve A/c. xxx
(Being the amount transferred to capital Redemption
Reserve Acc. as per the requirements of the Corn. Act.)
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{C} Combination of Both Method :-
:- A company can redeem the preference shares
{a} Partly from the proceeds from new issue and {b} Partly out of profits.
:- In order to fill 'gap' between the face value of shares redeemed and the proceeds of new issue,
a transfer is to be made from distributable profits
(Profit & Loss Account, general reserve and other free reserves) to Capital Redemption Reserve Account.
Calculation for Amount :- Download
{1} Amount to be transferred to Capital Redemption Reserve :-

Face Value of Preference Shares to be Redeemed XXX
[ Less ] Nominal Value of Proceeds from Fresh Issue (xxx)
Transferred to Cap. Red. Res. :- ***
{2} "Proceeds" to be collected from new issue

Face Value of Preference Shares to be Redeemed XXX
[ Less ] Profit Available for Distribution of Dividend (xxx)
Proceeds to be Collected from New Issue :- ***
❖ ACCOUNTING TREATMENT :
[1] At the time of fresh issue of shares :-
[a] Bank A/c ……………………………..Dr.
To share Application A/c
[b] Share Application A/c ……………………………..Dr.
To share Capital A/c
To Securities Premium A/c (if issued at premium)
[2] At time of redemption of preference shares :-
[a] Preference Share Capital A/c ……..Dr. (With par value of shares redeemed)
Premium on redemption of Preference Share A/c …. Dr. (With premium, if any, on redemption)
To Preference Shareholders A/c (with total amount payable)
[3] At time of raising funds for redemption :-
[A] Sale of Investment at Loss / profit :-
Bank A/c ……………..Dr ( with amount realized)
Profit & Loss (Loss) …………. Dr. ( Loss )
To investment A/c (with cost of investment)
To Profit & Loss A/c (Profit)
[B] Raising Bank loan :-
Bank A/c …………….Dr. (With amount of loan)
To Bank Loan A/c
[4] At the time of writing off premium, if any, on redemption of preference shares :-
Securities Premium A/c Dr.
Capital Reserve A/c Dr. ( if realized in cash)
Profit & Loss A/c Dr.
To Premium on Redemption of Preference Shares A/c.
[5] At the time of transfer to Capital Redemption Reserve :-
Dividend Equalization Reserve A/c Dr.
General Reserve A/c Dr.
Profit & Loss A/c Dr. Download
To Capital Redemption Reserve A/c.
[6] At the time of making payment to preference shareholders.
Preference shareholders A/c Dr.
To Bank A/c
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Topic 4 :- Format of Balance Sheet :- .

# Balance Sheet of SAHAS Industries as On 31st March 2021 :-
Particular Note No. Amt Rs.
[A] EQUITY & LIABILITIES :-
[1] Share Holders Fund :-
(a) Share Capital 1 Download
(b) Reserve & Surplus 2
[2] Non Current Liabilities ( Long Term Liabi ) :-
(a) Long term Borrowing 3
(b) Other Long Term Liabilities 4
(c) Long Term Provision 5
[3] Current Liabilities :-
(a) Short Term Borrowing 6
(b) Trade Payable 7
(c) Other Current Liabilities 8
(d) Short Term Provision 9
TOTAL XXXX
[B] ASSETS :-
[1] Non Current Asset ( Long Term Assets ) :-
(a) Fix Assets
= Tangible Assets 10
= Intangible Assets 11
(b) Non Current Investments 12
(c) Long Term Loans & Advances 13
(d) Other Non Current Assets 14
[2] Current Assets :-
(a) Current Investments 15
(b) Inventories 16
(c) Trade Receivables 17
(d) Cash & Cash Equivalents 18
(e) Short Term Loans & Advances 19
(f) Other Current Assets 20
TOTAL XXXX
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Topic 5 :- Notes to the Accounts { Different Items Covered Under Various Head } :- .
[Part A.] Equity & Liability :-

[1.] Share Holders Fund. :- Download
(a.) Share Capital .
[1.] Equity Share. [3.] Forfeited Shares.
[2.] Preference Share [4.] Call in Arrears (-) from Share capital.
(b.) Reserve & Surplus. –
[1.] P & L Account. ( Profit ) [2.] General Reserve.
[3.] Security Premium Reserve. [4.] Capital Reserve.
[5.] Reserve Fund.
[6.] Debenture Redemption Reserve, Or, Dividend Equalization Fund.
[7.] Worker Accident Compensation Fund , Or, Investment Fluctuation Fund
Less :- [8] P & L Account ( Loss ) Download
[2.] Non Current Liability. :-

(a.) Long Term Borrowing.
[1.] Debenture / Bond.
[2.] Long Term Loan / Bank Loan / Term Loan.
[3.] Public Deposit.
(b.) Other Long Term Liability.
[1.] Premium on Redemption of Debenture
[2.] Premium on Redemption of Preference Share
(c.) Long Term Provisions. ( it is Related to Employees. )
[1.] Provident Fund / Gratuity Fund / Pension Fund.
[2.] Workers Profit Sharing Fund.
[3.] Workers Saving Account.
[3.] Current Liabilities. :-

(a.) Short Term Borrowing.
[1.] Short Term Loans. ( for Less than 12 months, means 1 year )
[2.] Bank Overdraft / Cash Credit. [ C.C ]
(b.) Trade Payables.
[1.] Creditors. [2.] Bills Payables.
(c.) Other Current Liabilities.
[1.] Outstanding Expense / Income Received in Advance.
[2.] Unclaimed Dividend.
[3.] Debenture & Premium on Redemption of Debenture Payable within next 12 months.
[4.] Call in Advance, / Advance Received from Customers.
[5.] Outstanding interest on Debenture.
(d.) Short Term Provision.
[1.] Provision for Tax [2.] Proposed Dividend
Download
[Part B.] Assets. :-

[1.] Non Current Assets, / Long Term Assets. :-
(a.) Tangible Fix Assets.
[1.] Land Building. [2.] Plant Machinery. [3.] Furniture.
[4.] Vehicle. [5.] Tools & Equipment. [6.] Lease Hold Assets , Etcetra.
(a.a.) Intangible Fix Assets.
[1.] Goodwill. [2.] Patent. [3.] TradeMark. [4.] Copy Rights.
[5.] License. [6.] Software. [7.] Franchise , Etcetra.
(b.) Non Current Investment.
[1.] Provident Fund Investment. [2.] Debenture Redemption Fund Investment.
[3.] Share of Subsidiary Company.
[4.] Share & Debenture of Other Company.
[5.] F.D. with Bank. [6] Government Securities. ( for More than 12 Months )
[7.] Units of Mutual Fund.
(c.) Long Term Loans & Advances.
[1.] Loan To Employees. (for more than 12 months. )
[2.] Custom Deposit. [3.] Telephone Deposit. [4.] Electricity Deposit.
(d.) Other Non Current Assets.
[1.] Debenture Discount.
[2.] Advertisement Campaign Expenditure. ( to be written off after 12 months )
[3.] Research & Development Expense.
[2.] Current Assets, / Short Term Assets. :-

(a.) Current Investments.
[1.] Share & Debenture of Other Company.
[2.] Marketable Securities. [3.] Government Securities. ( for Less than 12 Months )
[4.] Units of Mutual Funds.
Download
(b.) Inventories.
[1.] Stock of Raw Material. [2.] Stock of Semi Finished Goods.
[3.] Stock of Finished Goods. [4.] Stock in Trade.
[5.] Loose Tools. [6.] Spare Parts.
[7.] Consumable Stores. [8.] Goods in Transit.
(c.) Trade Receivable.
[1.] Debtors. [2.] Bills Receivable.
(d.) Cash & Cash Equivalents.
[1.] Cash on Hand. [2.] Bank Balance. [3.] Cheques & Drafts on Hand.
(e.) Short term Loans & Advances.
[1.] Loan Advance. ( for Less than 12 Months )
[2.] Advance to Supplier. (Less than 12months)
(f.) Other Current Assets.
[1.] Pre paid Expense.
[2.] Income Due but Not Received. ( Accrued Income )
[3.] Advertisement Campaign Expense.
[4.] Debenture Discount. ( to be written off within 12 months )
[5.] Research & Development Exp.
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Best Practice Examples :-
Ex 1 ] Rajvi Construction Company Ltd. had 5,000 8% Redeemable Preference Shares of Rs.100 each, fully
paid up. The company decided to redeem this preference shares at par by the issue of sufficient number of
equity shares of Rs.10 each fully paid up at par. You are required to pass necessary Journal entries including
cash transactions in the books of the company.
Ex 2 ] Surendra Ltd. has part of its share capital in 2,000 8% Redeemable Preference Shares of Rs. 100 each
repayable at premium of 5%. The shares are now due for redemption. It is decided that the whole amount
will be redeemed out of a fresh issue of 20,000 equity share of Rs.10 each at Rs.11 each.
The whole amount is received in cash and 8% preference shares are redeemed.
:- Journalize the above transactions. { For Extra Practice }
Ex 3 ] Manish Ltd. redeemed 20,000 Preference Shares of Rs.50 each at a premium of 10% by issuing one
lakh equity shares of Rs.10 each at a premium of 10% which were fully subscribed and paid up.
:- Journalise the above transactions. { For Extra Practice }
Ex 4 ] The following are the extracts from the Balance Sheet of a Ltd. as on 31-12-2016.
Share Capital: 40,000 Equity Shares of Rs.10 each fully paid - Rs.4,00,000; 1,000 10% Redeemable Preference
Shares of Rs.100 each fully paid Rs. 1,00,000; Download
Reserve & Surplus: Capital Reserve - Rs.50,000; Security Premium Rs.50,000;
General Reserve Rs.75,000; Profit and Loss account Rs.35,000.
:- On 1st January 2017, the Board of Directors decided to redeem
the preference shares at par by utilisation of reserves.
:- You are required to pass necessary Journal entries including cash transactions.
Ex 5] XYZ Ltd. had issued 1,000, 12% Redeemable Preference Share at Rs.100 each repayment at 10%
Premium. This shares are to be redeem now out of the accumulated reserves which are more then the
necessary sum required for redemption.
:- Show the necessary journal entries assuming that the premium on redemption of share
has to be written off against the Company's Security Premium Account. { For Extra Practice }
Ex 6] Red Ltd. issued 20,000, 10% Redemption Preference Shares of Rs.10 each. These shares being
redeemable (a) At par or (b) at a premium of 5% out of profits. (Profit & Loss Account) otherwise available
for dividends. Journalise the transactions regarding redemption. { For Extra Practice }
Ex 7] Calculate the proceeds of fresh issue of 20,000 shares of Rs, 10 each made for the purpose of
redemption of 4,000 Preference shares of Rs. 100 each redeemable at a premium of 5%,
if fresh issue is made.: (i) at par, (ii) at 10% Premium
:- Also calculate the minimum transfer to capital redemption reserve
to comply with the provision of Sec. 80 of the Companies Act, 1956.
Ex 8] Calculate the proceeds of fresh issue of 40,000 shares of Rs. 10 each made for the purpose of
redemption of 8,000 Preference shares of Rs. 100 each redeemable at a premium of 5%, if fresh issue is
made.: (i) at par, (ii) at 10% Premium Also calculate the minimum transfer to capital redemption reserve to
comply with the provision of Sec. 80 of the Companies Act, 1956. { For Extra Practice }
Ex 9] Saurashtra Limited had 3,000, 12% Redeemable Preference Shares of Rs.100 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:
(a) 25,000 equity share of Rs.10 each at a premium of Rs.1 per share.
(b) 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 company.
Ex 10] (Col) Following is the Financial Position of X Ltd. on the date of redemption of preference shares
LIABILITIES Amt. Rs. ASSETS Amt. Rs.
Equity Share Capital (Rs.10 each) 8,00,000 Fixed Assets 21,00,000
Preference Share Capital 2,00,000 Investment 4,00,000
(Rs.100 each partly paid up) (Market Value Rs. 4,75,000)
Preference Share Capital 4,00,000 Current Assets:
(Rs.100 each fully paid up) Bank 2,00,000
Capital Redemption Reserve 2,00,000 Other current Assets 3,00,000
Securities Premium 10,000
Profit & Loss 5,90,000
Other Liabilities 8,00,000
30,00,000 30,00,000
# To redeem preference shares following resolution is passed: Download
{a} Preference shares are to be redeemed at a premium of 20%
{b} Investments are to be sold at a loss of 5%
{C} 10,000 equity shares of Rs. 10 each are to be issued at par
for the purpose of redemption of preference shares.
:- Pass necessary Journal Entries to record the above transactions
assuming that all the necessary formalities are complied with.
:- Also prepare Balance Sheet after redemption of preference shares. -
Ex 11] (Col.) The Balance sheet of FIRE Ltd. As on 31.03.2019 was as follows.
Equity shares of Rs. 50 each Fixed Assets 3,45,000
fully paid up 2,25,000 Investments 18,500
Pref. shares of Rs.100 each Bank 31,000
fully paid up 65,000
Profit & Loss 48,000
Creditors 56,500
3,94,500 30,00,000
# In order to facilitate the redemption of preference shares at a premium of 10%. The company decided.
(1) To sell the investment for Rs.15,000
(2) To finance part of redemption from company funds, subject to leaving a bank balance of Rs.12,000
(3) To issue minimum equity shares of Rs.50 each at a premium of Rs.10 per share
to raise the balance of funds required.
:- Pass journal entries to record the above transaction & prepare the balance sheet after redemption.
Ex 12] The financial position of Rohan Ltd. As on 31.03.2019 was as follows. { For Extra Practice }
Equity shares of Rs. 50 each Fixed Assets 6,90,000
fully paid up 4,50,000 Investments 37,000
Pref. shares of Rs.100 each Bank 62,000
fully paid up 1,30,000
Profit & Loss 96,000
Creditors 1,13,000
7,89,000 7,89,000
:- In order to facilitate the redemption of preference shares at a premium of 10%, the company decided.
(1) To sell the investment for Rs. 30,000.
(2) To finance part of redemption from company funds, subject to leaving a bank balance of Rs. 24,000.
(3) To issue minimum equity shares of Rs. 50 each at a premium of Rs. 10 per share
to raise the balance of funds required.
:- Pass necessary journal entries to for above transaction & prepare the balance sheet after redemption.
Ex 13] (Col.) The Balances in the books of VIBGYOR LTD. as on 31st March, 2019 were as follows:
Particulars (Amt. in Rs.)
30,000 Equity share of Rs. 100 each 30,00,000
25,000 Preference share of Rs. 100 each 25,00,000
Less: Calls in arrears on 600 shares 12,000 24,88,000
Securities premium 1,50,000
Cash at Bank 13,00,000
:- Preference shares were due for redemption on 1.7.12019 at a premium of 5%
:- On getting reminder Preference shareholders holding 500 shares paid unpaid calls on 30.4.2019.
:- Remaining Preference shareholders expressed their inability to pay and
consequently their shares were forfeited on 1.5.2019.
:- On 1.6.2019, 15,000 equity shares of Rs. 100 each are to be issued at par
for the purpose of preference shares.
You are required to show the journal entries and the Balance Sheet of the company after redemption.
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Ex 14] The Balances in the books of Kohinoor LTD. as on 31st March, 2019 were as follows:
{ For Extra Practice } { Same as Ex 13 }
Particulars (Amt. in Rs.)
60,000 Equity share of Rs. 100 each 60,00,000
50,000 Preference share of Rs. 100 each 50,00,000
Less: Calls in arrears on 1200 shares 24,000 49,76,000
Securities premium 3,00,000
Cash at Bank 26,00,000
:- Preference shares were due from redemption on 1.7.12019 at a premium of 5%
:- On getting reminder Preference shareholders holding 500 shares paid unpaid calls on 30.4.2019.
:- Remaining Preference shareholders expressed their inability to pay and
consequently their shares were forfeited on 1.5.2019.
:- 1.6.2019, 30,000 equity shares of Rs.100 each are to be issued at par for the purpose of preference shares.
:- You are required to show the journal entries and the Balance Sheet of the company after redemption.
Ex 15] (Col.) The following is the Financial Position of MIRC Electronics Ltd. as on 31.3.2019.
SHARE CAPITAL FIXED ASSETS
90,000 Equity shares of Plant and Machinery 5,00,000
Rs.10 each fully paid up 9,00,000 Building 10,00,000
5,000 14% Preference shares of
Rs.100 each 5,00,000 INVESTMENTS 10,00,000
Less: Final call of Rs.25 Per share
unpaid 25,000 4,75,000 CURRENT ASSETS
Sundry Debtors 45,000
RESERVES & SURPLUS Bank 1,45,000
Profit & Loss A/c 2,75,000
Securities Premium A/c 20,000
CURRENT LIABILITIES
Bills payable 1,20,000
17,90,000 17,90,000
:- The Board of directors decided to redeem only the fully paid up 14% Preference shares
at a premium of 10% on 31st March, 2019 and Download
to sell the investment at its market price of Rs. 75,000.
:- Company also decided to issue sufficient number of equity shares of Rs.10 each
at premium of Rs.1 per share, required after utilizing the Profit & Loss A/C
leaving a balance of Rs. 50,000.
:- Premium on redemption is required to be set off against the securities premium A/c.
[Fresh issue-20,000 @ Rs.10; Transfer to CRR-Rs.2,00,000; B/S.: 15,45,000]
Ex 16] The following is the Financial Position of SURYA ELECTRONICS LTD. As on 31.3.2019. (Amt. in Rs.)
LIABILITIES Amt. ASSETS Amt.
SHARE CAPITAL FIXED ASSETS
1,80,000 Equity shares of Plant and Machinery 10,00,000
Rs.10 each fully paid up 18,00,000 Building 20,00,000
10,000 14% Preference shares of
Rs.100 each 10,00,000 INVESTMENTS 2,00,000
Less: Final call of Rs.25 Per share
unpaid 50,000 9,50,000 CURRENT ASSETS
Sundry Debtors 90,000
RESERVES & SURPLUS Bank 2,90,000
Profit & Loss A/c 5,50,000
CURRENT LIABILITIES
Bills payable 2,40,000
35,80,000 35,80,000
:- The Board of directors decided to redeem only the fully paid up 14% Preference shares
at a premium of 10% on 31st March, 2019 and Download
to sell the investment at its market price of Rs. 1,50,000.
:- Company also decided to issue sufficient number of equity shares of Rs. 10 each
at premium of Rs.1 per share, required after utilizing the Profit & Loss A/C
leaving a balance of Rs.1,00,000.
:- Premium on redemption is required to be set off against the securities premium A/c.
Ex 17] (Col.) Following is the Financial Position of Kshama Ltd. as on 31.3.2019.
Equity shares capital: Non-Current Assets:
15,000 Equity shares of Fixed Assets 25,00,000
Rs.100 each fully 15,00,000 Investments 5,00,000
Preference shares capital: Current Assets:
15,000, 6% Redeemable pref. Cash at Bank 10,00,000
Shares of Rs.100 each 15,00,000
Less: Unpaid call on 1,00,000
5,000 shares 14,00,000
Creditors 3,00,000
40,00,000 40,00,000
:- On getting reminder, calls in arrears were paid by shareholders on 1.5.2019.
:- The Board of directors decided to redeem the fully paid up 6% Redeemable Preference shares
on 31.05.19 at premium of 10%.
:- To raise funds, company has decided to sell its Market Value of Rs.7,00,000.
at premium of 10% required after utilizing the Profit & Loss A/c
leaving a balance of Rs. 1,20,000
:- Premium on redemption is required to be written off by using securities premium A/c.
# You are required to show the journal entries and the Balance Sheet of the company after redemption.
Ex 18] Following is the Financial Position of Manisha Ltd. as on 31.3.2019.

Equity shares capital: Non-Current Assets:
30,000 Equity shares of Fixed Assets 50,00,000
Rs.100 each fully paid up 30,00,000 Investments 10,00,000
Preference shares capital: Current Assets:
30,000, 6% Redeemable pref. Cash at Bank 20,00,000
Less: Unpaid call on 2,00,000
10,000 shares 28,00,000
Securities Premium A/c 1,60,000
Creditors 6,00,000
80,00,000 80,00,000
:- On getting reminder, calls in arrears were paid by shareholders on 1.5.2019.
:- The Board of directors decided to redeem the fully paid up 6% Redeemable Preference shares
on 31.05.17 at premium Of 10%.
:- To raise funds, company has decided to sell its Market Value of Rs. 14,00,000. Download
at premium of 10% required after utilizing the Profit & Loss A/c
leaving a balance of Rs.2,40,000.
:- Premium on redemption is required to be written off by using securities premium A/c .
Ex 19] (Col.) The Financial Position of AQUA Ltd. As on 31.03.2019 was as follows:
8,00,000 Eq. shares of Rs.10 each 80,00,000 Plant 50,00,000
10% Redeemable Preference Furniture 18,00,000
shares of Rs. 100 each fully Investments 7,00,000
paid up 24,00,000 Stock 30,00,000
Securities Premium A/c 1,20,000 Debtors 28,00,000
Profit & Loss 13,60,000 Bank 7,80,000
Creditors 22,00,000
Total 1,40,00,000 1,40,00,000
# Following additional information is available:
(1) Preference shares are redeemed on 31.03.2019 at premium of 10%
(2) To provide cash for redemption, investments are sold for Rs. 6,00,000.
(3) Minimum balance of 24,20,000 is required in P&L A/c. after redemption of pre-share.
(4) Minimum number of equity shares of Rs. 10 each are issued at 10% premium
for the purpose of redemption.
:- Pass necessary Journal Entries to record the above transactions and
Prepare Balance Sheet after Redemption of Preference Shares.
Ex 20] The Financial Position of Altra Ltd. As on 31.03.2019 was as follows: (Amt. in Rs.)
LIABILITIES Amt. ASSETS Amt.
16,00,000 Eq. shares of Rs.10 1,60,00,000 Plant 1,00,00,000
each 10% Redeemable Furniture 36,00,000
Preference shares of Rs.100 each 48,00,000 Investment 14,00,000
fully paid up 2,40,000 Stock 60,00,000
Securities Premium A/c 27,20,000 Debtors 56,00,000
Profit & Loss 44,00,000 Bank 15,60,000
Creditors
2,80,00,000 2,80,00,000
# Following additional information is available:
1. Preference shares are redeemed on 31.03.2019 at premium of 10%
2. To provide cash for redemption, investments are sold for Rs. 12,00,000.
3. Minimum balance Of Rs. 8,40,000, is required in P & L A/c after redemption of Pref. share.
4. Minimum number of equity shares of Rs. 10 each are issued at Download
10% premium for the purpose of redemption.
Prepare Balance Sheet after Redemption of Preference. Shares.
Ex 21] (Col.) The Balance Sheet of JOJO Ltd. As on 31st March, 2019 was as follows.
Equity shares capital: Fixed Assets 60,00,000
3,00,000 Equity shares of
Preference shares capital:
25,000, 6% Redeemable Cash at Bank 9,00,000
preference
Less: Final call of 28,00,000
Rs.20 per share unpaid 2,00,000 1,50,000
Creditors
Total 74,00,000 Total 74,00,000
:- On 31.03.2019, the Board of Directors decided to redeem the fully paid preference shares
at a premium of 10% and to sell the investment at its market price of Rs. 4,00,000.
:- They also decide to issue sufficient number of Equity shares of Rs. 10 each
at a premium of Re. 1 per share, required after utilizing the profit & Loss A/c Download
leaving a balance of Rs. 5,00,000.
:- Premium on redemption is required to be set off against securities premium account.
Prepare Balance sheet after Redemption of Preference Shares.
Ex 22] The Balance Sheet of YOYO Ltd. As on 31st March, 2019 was as follows. { For Extra Practice }
Equity shares capital: Fixed Assets 1,20,00,000
6,00,000 Equity shares of
Preference shares capital:
50,000, 6% Redeemable Cash at Bank 18,00,000
preference
Less: Final call of 49,60,000
Rs.20 per share unpaid 40,000 3,00,000
Creditors
1,48,00,000 1,48,00,000
:- On 31.03.2019, the Board of Directors decided to redeem the fully paid preference shares
at a premium of 10% and to sell the investment at its market price of Rs. 8,00,000.
:- They also decide to issue sufficient number of Equity shares of Rs.10 each
at a premium of Re. 1 per share, required after utilizing the profit & Loss A/c Download
leaving a balance of Rs. 10,00,000.
:- Premium on redemption is required to be set off against securities premium account.
Prepare Balance sheet after Redemption of Preference Shares.
Ex.23] (Col.) The Financial Position of Colorful Ltd. on the date of redemption preference shares is a follows:

SHARE CAPITAL FIXED ASSETS 18,50,000
Equity shares of (Rs. 10 each) 10,00,000
10% Cumulative Preference 3,00,000 INVESTMENTS 5,00,000
shares (Market value Rs. 5,75,000)
(Rs.100 each Rs.75 paid up)
10% Redeemable Preference 2,00,000 CURRENT ASSETS
shares of Rs.100 each fully paid Cash at Bank 5,00,000
up 3,00,000 Other current assets 4,00,000
RESERVES & SURPLUS 50,000
Capital Redemption reserve 6,00,000
Profit & Loss
CURRENT LIABILITIES
Total 32,50,000 Total 32,50,000
# To redeem preference shares following resolution is passed:
(1) Preference shares to be redeemed at a premium of 10%
(2) Investments are to be sold at a profit of 10% Download
(3) 10,000 Equity shares of Rs.10 each are to be issued at par
:- Pass necessary Journal entries to record the above transaction.
:- Also prepare Balance Sheet after redemption of preference shares.
Ex 24] The Financial Monark Colorful Ltd. on the date of redemption preference shares is a follows:
SHARE CAPITAL FIXED ASSETS 37,00,000
Equity shares of (Rs. 10 each) 20,00,000
10% Cumulative Preference 6,00,000 INVESTMENTS 10,00,000
shares (Market value Rs. 5,75,000)
(Rs.100 each Rs.75 paid up)
10% Redeemable Preference 4,00,000 CURRENT ASSETS
shares of Rs.100 each fully paid Cash at Bank 10,00,000
up 6,00,000 Other current assets 8,00,000
RESERVES & SURPLUS 1,00,000
Capital Redemption reserve 12,00,000
Profit & Loss
CURRENT LIABILITIES
Total 65,00,000 Total 65,00,000
:- To redeem preference shares following resolution is passed:
(1) Preference shares to be redeemed at a premium of 10%
(2) Investments are to be sold at a profit of 10%
(3) 20,000 Equity shares of Rs. 10 each are to be issued at par
:- Pass necessary Journal entries to record the above transaction assuming that all the necessary
formalities are complied with. Also prepare Balance Sheet after redemption of preference shares.
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SAHAS Institute :- 11th 12th Comm // F.Y – S.Y, - T.Y. B.Com // C.A & C.

S [All Levels] Page 1 of 14

11th 12th (Eng. Med)

S.Y.B.Com [ Sem 3 ] Higher Financial Accounting Unit 2

Topic 1 :- Basic Understanding & Meaning.

# Redemption of Preference Shares :-

# Capital Redemption Reserve Account :- Download

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Topic 2 :- Premium on Redemption of Preference Shares .

# For Knowledge :- # Forfeiture & Cancellation of Shares due to Unpaid Calls :-

Date Particulars L.F. Debit Credit

Calculation for Amount :- Download

{1} Amount to be transferred to Capital Redemption Reserve :-

{2} "Proceeds" to be collected from new issue

LOWEST FEES = HIGHEST VALUE EDUCATION

Topic 4 :- Format of Balance Sheet :- .

[Part A.] Equity & Liability :-

[2.] Non Current Liability. :-

[3.] Current Liabilities. :-

[Part B.] Assets. :-

[2.] Current Assets, / Short Term Assets. :-

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Ex 18] Following is the Financial Position of Manisha Ltd. as on 31.3.2019.

LIABILITIES Amt. Rs. ASSETS Amt. Rs.

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