CH.

USE CODE ‘ANSHUL’

Rs.TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3

CHAPTER – 3
REDEMPTION OF PREFERENCE SHARES

TABLE OF CONTENTS
1. Section 55 of Companies Act 2013 2. Accounting Entries
3. Creation of Capital Redemption Reserve 4. Divisible and Non-Divisible Profits
5. Practical Problems

1. SECTION 55 OF COMPANIES ACT 2013

Redemption means ‘To Repay’. It is the process of repaying an obligation, at prearranged amounts and time.
Through the process of redemption, a Company not only fulfills its obligations but can also adjust its financial
restructure, which is more beneficial to the Company. In India, no company can issue irredeemable preference
shares. The maximum period for which the company can issue preference shares is 20 years. Therefore,
maximum redemption period is 20 years.

The Preference Shares can be redeemed only out of the following three alternatives.-
1. Full redemption out of profits of the Company.
2. Full redemption out of process of fresh issue
3. Part redemption out of profits of the Company and part redemption out of proceeds of fresh issue

As per Section 55 following are the requirements for redemption of "Redeemable preference shares"-
1. No such shares shall be redeemed unless they are fully paid.
2. No such shares shall be redeemed except out of the profits of the company, which would otherwise
be available for distribution by way of dividend or out of proceeds of a fresh issue of shares made
for the purpose of redemption.
3. Where any such shares are redeemed out of profits, a sum equal to the nominal amount of the shares
so redeemed must be transferred out of profits of the company to a reserve called the “Capital
Redemption Reserve Account”.
4. The Capital Redemption Reserve can be utilised for the issue of fully paid bonus shares to the
shareholders. Otherwise, the Account must be maintained intact.
5. If preference shares are redeemed at premium, then the amount of premium payable can be utilised
out of:
PREMIUM ON REDEMPTION OF P.S.

Cos. Governed u/s Other

133 & comply with Companies
Accounting Std. (Sec. 132 Cos.)

Premium payable of redemption of Premium payable of redemption of

preference shares shall be provided preference shares shall be provided
3. 1

out of profits of the company and out of profits of the company or out
such cos. can’t utilise their balance of Securities Premium account.
in Securities Premium account.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

 CH.
USE CODE ‘ANSHUL’ TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3

VERY IMPORTANT FROM EXAMINATION VIEW POINT

All the question are to be solved on the assumption that the companies referred in the question are governed u/s
133 of Companies Act 2013 and are complying with accounting standards. Accordingly for the purpose of premium
payable on redemption of preference shares, the balance in ‘Securities Premium’ account has not been utilised.
[Reference: ICAI Module Chapter-7 Page 7.6]

NOTE: Many authorities believe that though Sec. 55 mentions “proceeds of a fresh issue of shares” only the
“Nominal Value of shares issued” should be considered for determining the amount to be credited to Capital
Redemption Reserve Account. This means that any premium received on issue of shares should be disregarded.
However in case of issue of shares at discount, “proceeds of fresh issue of shares “on the safer side should be
interpreted as issue price (i. e. Net of discount).

2. ACCOUNTING ENTRIES

SR.NO. TRANSACTION ACCOUNTING ENTRIES

1. Fresh issue of shares
i. Application money received Bank A/c. …….... Dr.
To Share application and allotment A/c
ii. Allotment of shares Share application & allotment A/c. …….... Dr.
Discount on issue of shares A/c
To Equity Share Capital A/c
To Securities Premium A/c
2. Transfer of profits to Capital General Reserve A/c. …….... Dr.
Redemption Reserve A/c Profit and Loss A/c. …….... Dr.
Other Reserves A/c. …….... Dr.
(Divisible profits)
To Capital Redemption Reserve A/c
3. Provision for premium payable Securities Premium A/c. …….... Dr.
on redemption Profit and Loss A/c. …….... Dr.
Other Reserves A/c. …….... Dr.
(Divisible Profits)
To premium payable on redemption A/c
4. Amount due on redemption Preference Share Capital A/c. …….... Dr.
Premium payable on redemption A/c. …….... Dr.
To preference shareholders/
preference share redemption A/c
5. Redemption of amount due Preference Shareholders/
Preference share redemption A/c. …….... Dr.
To Bank A/c
6. Issue of Bonus Shares i. Capital Redemption Reserve A/c. …….... Dr.
Securities Premium A/c. …….... Dr.
Other Reserves A/c. …….... Dr.
(Divisible Profit)
To Bonus to Shareholders A/c
ii. Bonus to shareholders A/c. …….... Dr.
3. 2

To Equity Share Capital A/c

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

 CH.
USE CODE ‘ANSHUL’
Rs.TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3
Notes:
1. Partly paid preference shares cannot be redeemed. In this case make the call for the balance uncalled
money, receive the call money in full and then proceed for redemption of preference shares.
2. Premium payable on redemption of Preference Shares has to be provided either out of Securities Premium
or out of Divisible Profits. If Preference Shares are redeemed out of proceeds of fresh issue and new shares
are issued at premium. The question arises, whether securities Premium on issue of new shares can
be utilised for providing premium payable on redemption of preference shares? The wording of Sec.
55 prescribes to comply all the requirements before redemption. With strict interpretation of the Section,
it is believed that 'Securities Premium' on issue of shares for the purpose of redemption of preference
shares cannot be utilised for providing premium payable on redemption of preference shares. However,
this strict interpretation is not free from doubt.

3. CREATION OF CAPITAL REDEMPTION RESERVE

Capital Redemption Reserve (CRR) is created for the following reasons -

1. to maintain the capital intact
2. to Safeguard the interest of Company's Creditors
Preference Shares redeemed out of proceeds of fresh issue of shares has effect of decreasing Preference
Share Capital and simultaneously increasing the share capital (Equity or Preference). Thus total capital of
the company remains intact.
Preference shares redeemed out of profits of the Company has effect of decreasing Preference Share
Capital and increasing the 'Capital Redemption Reserve Account' (CRR). CRR has to be utilised only for
issuing bonus shares. Thus CRR has effect of increasing the share capital in future. Here also total Capital
of the Company remains intact.
By creating CRR, Company's creditor’s interest is safeguarded. Otherwise directors of the Company may
distribute the divisible profits by way of dividend.

4. DIVISIBLE AND NON-DIVISIBLE PROFITS

DIVISIBLE PROFITS
SR. SR.
(I.E. PROFIT AVAILABLE FOR DIVIDEND NON-DIVISIBLE PROFITS
NO. NO.
DISTRIBUTION)
1. General Reserve 1. Securities Premium
2. Profit and Loss A/c 2. Capital Reserve
3. Dividend Equalisation Reserve 3. Profit prior to Incorporation
4. Reserve Fund 4. Forfeited shares A/c
5. Excess Provisions 5. Profit on Revaluation of Fixed Assets
6. Any other Revenue Reserve

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________
3. 3

_______________________________________________________________________________________________________________________________

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

 CH.
USE CODE ‘ANSHUL’ TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3

5. PRACTICAL PROBLEMS

IN-CLASSROOM PROBLEMS PRACTISE PROBLEMS SELF-ASSESSMENT PROBLEMS

Essentials Growth Maturity

Q1. Redemption at Par: Fully out of ES issued at Par REG. PAGE NO.
Hinduja Company Ltd. had 5,000, 8% Redeemable Preference Shares of Rs. 100 each, fully paid up. The
company decided to redeem these 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.

Q2. Redemption at Par: Fully out of ES issued at Premium REG. PAGE NO.
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.

Q3. Redemption at Par: Fully out of ES issued at Par REG. PAGE NO.
G India Ltd. had 9,000 10% redeemable Preference Shares of Rs. 10 each, fully paid up. The company
decided to redeem these preference shares at par by the issue of sufficient number of equity shares of Rs.
9 each fully paid up. You are required to pass necessary Journal Entries including cash transactions
in the books of the company.

Q4. Issue minimum ES (at Discount) & utilise maximum Div. Profit REG. PAGE NO.
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.

Q5. Red. at Premium, Issue min. ES (at Premium) & utilise maximum DP REG. PAGE NO.
Exchange Limited has issued share capital consisting of 650, 7% Redeemable Preference Shares of Rs. 100
each and 4,500 Equity Shares of Rs. 50 each. The preference shares are redeemable at a premium of 10%
on 1st April, 2018. The Company’s Balance - Sheet as on 31st March, 2018 was as follows -
Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets 3,45,000
Issued 650 7 % Redeemable
Preference Shares of Rs. 100 Investments 18,500
each fully paid. 65,000 Balance at Bank 31,000
4,500 Equity Shares of Rs. 50
each fully paid. 2,25,000
2,90,000
Profit & Loss A/c 48,000
3. 4

Sundry Creditors 56,500 _________

Total 3,94,500 Total 3,94,500

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

 CH.
USE CODE ‘ANSHUL’
Rs.TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3
In order to facilitate the redemption of Preference Shares, the Company decided -
a. To sell all the investments for Rs. 15,000
b. To finance part of the redemption from company funds, subject to leaving a bank balance of Rs.
12,000; and
c. To issue minimum Equity Shares of Rs. 50 each at a premium of Rs. 10 per share to raise the balance
of funds required.
The preference shares were redeemed on the due date and the issue of Equity Shares was fully subscribed.
You are required to prepare:
i. The necessary Journal Entries to record the above transactions (including cash) and
ii. The Balance - Sheet as on completion.

Q6. Red. at Par, utilisation of Reserves (VIMP Question) (RTP M18, N18 & N19)REG. PAGE NO.
The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December, 2017.
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.
Reserve & Surplus:
Capital Reserve – Rs. 50,000 Securities Premium – Rs. 50,000
General Reserve – Rs. 75,000 Profit and Loss Account – Rs. 35,000
On 1st January 2018, the Board of Directors decided to redeem the preference shares at par by utilisation
of reserve. You are required to pass necessary Journal Entries including cash transactions in the
books of the company.

Q7. Red. at Par, utilisation of Reserves (Same as Q6) REG. PAGE NO.
The books of B Ltd. showed the following balance on 31st December, 2018:
30,000 Equity Shares of Rs. 10 each fully paid; 18,000 12% Redeemable Preference shares of Rs. 10 each
fully paid; 4,000 10% Redeemable Preference Shares of Rs. 10 each, Rs. 8 paid up (all shares issued on 1st
April, 2018).
Undistributed Reserve and Surplus stood as:
Profit and Loss Account Rs. 80,000; General Reserve Rs. 1,20,000; Securities Premium Account Rs. 15,000
and Capital Reserve Rs. 21,000.
Preference shares are redeemed on 1st January, 2019 at a premium of Rs. 2 per share. The whereabouts of
the holders of 100 shares of Rs. 10 each fully paid are not known.
For redemption, 3,000 equity shares of Rs. 10 each are issued at 10% premium. At the same time, a bonus
issue of equity share was made at par, two shares being issued for every five held on that date out of the
Capital Redemption Reserve Account.
Show the necessary Journal Entries to record the transactions.

Q8. Red. at Par, Proceeds of Deb. Cannot be utilised REG. PAGE NO.
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
3. 5

company had sufficient profits. Show Journal Entries in the books of the company.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

 CH.
USE CODE ‘ANSHUL’ TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3
Q9. Red. at Premium, Issue of ES and utilisation of Reserves REG. PAGE NO.
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 1.4.2018).
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.

Q10. Red. at Premium, Issue of Right Shares REG. PAGE NO.

The Balance Sheet of XYZ as at 31st December, 2018 inter alia includes the following:
50,000, 8% Preference Shares of Rs. 100 each, Rs. 70 paid up Rs. 35,00,000
1,00,000 Equity Shares of Rs. 100 each fully paid up Rs. 1,00,00,000
Securities Premium Rs. 5,00,000
Capital Redemption Reserve Rs. 20,00,000
General Reserve Rs. 50,00,000
Under the terms of their issue, the preference shares are redeemable on 31st March, 2019 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, 2019. The issue was fully subscribed and allotment made on 1st March,
2019. The money due on allotment were received by 31st March, 2019. 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.

Q11. Sub-Division, Red. of PS at Prem., Red. of Deb. (FCD/PCD), Bonus Issue REG. PAGE NO.
The following is the summarised Balance Sheet of Bumbum Limited as at 31st March, 2018:
Sources of funds Rs.
Authorized capital
50,000 Equity shares of Rs. 10 each 5,00,000
10,000 Preference shares of Rs. 100 each (8% redeemable) 10,00,000
15,00,000
Issued, subscribed and paid up
30,000 Equity shares of Rs. 10 each 3,00,000
5,000, 8%Redeemable Preference shares of Rs. 100 each 5,00,000
Reserves & Surplus
Securities Premium 6,00,000
General Reserve 6,50,000
Profit & Loss A/c 40,000
2,500, 9% Debentures of Rs. 100 each 2,50,000
Trade payables 1,70,000
25,10,000
3. 6

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

 CH.
USE CODE ‘ANSHUL’
Rs.TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3
Application of funds
Fixed Assets (net) 7,80,000
Investments (market value Rs. 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Trade receivables 6,20,000
Cash & Bank balance 2,80,000
25,10,000
In Annual General Meeting held on 20th June, 2018 the company passed the following resolutions:
(i) To split equity share of Rs. 10 each into 5 equity shares of Rs. 2 each from 1st July.
(ii) To redeem 8% preference shares at a premium of 5%.
(iii) To redeem 9% Debentures by making offer to debenture holders to convert their holdings into
equity shares at Rs. 10 per share or accept cash on redemption.
(iv) To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held on record
date.
On 10th July, 2018 investments were sold for Rs. 5,55,000 and preference shares were redeemed.
40% of Debenture holders exercised their option to accept cash and their claims were settled on 1st
August, 2018.
The company fixed 5th September, 2018 as record date and bonus issue was concluded by 12th
September, 2018
You are requested to journalize the above transactions including cash transactions and prepare
Balance Sheet as at 30th September, 2018. All working notes should form part of your answer.

Q12. Red. at Premium, Issue of Bonus Shares REG. PAGE NO.

The following is the summarized Balance Sheet of Trinity Ltd. as at 31.3.2018:
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets
Authorised Gross Block 3,00,000
10,000 10% Redeemable Preference Less: Depreciation 1,00,000
Shares of Rs. 10 each 1,00,000 2,00,000
90,000 Equity Shares of Rs. 10 each 9,00,000 Investments 1,00,000
10,00,000 Current Assets and Loans
Issued, Subscribed and Paid-up Capital and Advances
10,000 10% Redeemable Preference Inventory 45,000
Shares of Rs. 10 each 1,00,000 Trade receivables 25,000
10,000 Equity Shares of Rs. 10 each 1,00,000 Cash and Bank Balances 50,000
(A) 2,00,000
Reserves and Surplus
General Reserve 1,20,000
Securities Premium 70,000
Profit and Loss A/c 18,500
(B) 2,08,500
Current Liabilities and Provisions (C) 11,500 ___________
Total (A + B + C) 4,20,000 Total 4,20,000
3. 7

For the year ended 31.3.2019, the company made a net profit of Rs. 35,000 after providing Rs. 20,000
depreciation.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

 CH.
USE CODE ‘ANSHUL’ TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3
The following additional information is available with regard to company’s operation:
1. The preference dividend for the year ended 31.3.2019 was paid.
2. Except cash and bank balances other current assets and current liabilities as on 31.3.2019, was the
same as on 31.3.2018.
3. The company redeemed the preference shares at a premium of 10%.
4. The company issued bonus shares in the ratio of one share for every equity share held as on
31.3.2019.
5. To meet the cash requirements of redemption, the company sold investments.
6. Investments were sold at 90% of cost on 31.3.2019.
You are required to prepare necessary journal entries to record redemption and issue of bonus shares.

Q13. Red. at Premium, Issue of Bonus Shares REG. PAGE NO.

The following is the summarised Balance - Sheet of Nippo Ltd., as at 31st December 2018.
Liabilities Rs. Assets Rs.
Share Capital Fixed Assets 18,00,000
Issued, Subscribed and paid up Current Assets 7,50,000
9 % Redeemable Preference Shares 1,20,000
of Rs. 100 each
Equity Shares of Rs. 10/- each 12,00,000
Securities Premium 60,000
Revenue Reserve 9,00,000
Current Liabilities 2,70,000 __________
Total 25,50,000 Total 25,50,000
The Preference Shares were redeemed on, 1st January, 2019 at a premium of Rs. 10/- per share. For the
purpose of financing the redemption partly, 6000 equity shares of Rs. 10/- each were issued at a premium
of 5% and these were fully subscribed and paid for.
You are required to show -
1. The Journal Entries (including those for cash transactions) for giving effect to the redemption and
issue of shares.
2. Balance Sheet after giving effect to the above transactions.
_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________
3. 8

_______________________________________________________________________________________________________________________________

_______________________________________________________________________________________________________________________________

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on

 CH.
USE CODE ‘ANSHUL’
Rs.TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3

IN-CLASSROOM PROBLEMS PRACTISE PROBLEMS SELF-ASSESSMENT PROBLEMS

Essentials Growth Maturity
Q1. Red. at Premium, Issue of ES and utilisation of Reserves (RTP M19) REG. PAGE NO.
The capital structure of AP Ltd. 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 1.4.2018).
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; 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.

ANSWER: Balances ESC Rs. 2,25,000; GR Rs. 20,000, CRR Rs. 75,000, IAR Rs. 5,000.
No. of ES to be Issued = 2,500 ES

Q2. Red. at Par, utilisation of Reserves (RTP N19) REG. PAGE NO.
The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December, 2019:
SHARE CAPITAL:
50,000 Equity shares of Rs. 10 each fully paid – Rs. 5,00,000;
2,000 10% Redeemable preference shares of Rs. 100 each fully paid – Rs. 2,00,000.
RESERVE & SURPLUS:
Capital reserve –Rs. 2,00,000; General reserve –Rs. 2,00,000; Profit and Loss Account –Rs. 75,000.
On 1st January 2020, the Board of Directors decided to redeem the preference shares at premium of 5%
by utilization of reserves. You are required to prepare necessary Journal Entries including cash
transactions in the books of the company.
ANSWER: Balances CR Rs. 2,00,000; GR Nil; P&L Rs. 65,000.
HINT: CR cannot be utilised to transfer to CRR.

Q3. Red. at Par, utilisation of Reserves (RTP M18 & N18) REG. PAGE NO.
The following are the extracts from the Balance Sheet of Meera Ltd. as on 31st December, 2017.
Share Capital:
60,000 Equity shares of Rs. 10 each fully paid – Rs. 6,00,000;
1,500 10% Redeemable preference shares of Rs. 100 each fully paid – Rs. 1,50,000.
Reserve & Surplus:
Capital Reserve – Rs. 75,000 Securities Premium – Rs. 75,000
General Reserve – Rs. 1,12,500 Profit and Loss Account – Rs. 62,500
On 1st January 2018, the Board of Directors decided to redeem the preference shares at premium of 10%
by utilisation of reserve. You are required to pass necessary Journal Entries including cash transactions
in the books of the company.

ANSWER: Balances GR Nil, P&L Rs. 10,000.

3. 9

HINT: SP and CR cannot be utilised.

Connect CA. Anshul on CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL

 CH.
USE CODE ‘ANSHUL’ TO GET 10% OFF ON UNAACDEMY SUBSCRIPTIONS
3

IN-CLASSROOM PROBLEMS PRACTISE PROBLEMS SELF-ASSESSMENT PROBLEMS

Essentials Growth Maturity

Q1. REG. PAGE NO.

Dheeraj Limited had 5,000, 10% 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:
(iii) 40,000 Equity Shares of Rs. 10 each at par,
(iv) 2,000 12% 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.

Q2. REG. PAGE NO.

The summarized Balance - Sheet of Clean Ltd. as on 31st March, 2019 was as follows -
Liabilities Rs. Assets Rs.
Share Capital: Tangible Assets 6,90,000
1,300 8 % Redeemable
Preference Shares of Rs. 100 Investments 37,000
each fully paid. 1,30,000 Balance at Bank 62,000
9,000 Equity Shares of Rs. 50
each fully paid. 4,50,000
Profit & Loss A/c 96,000
Trade Payables 1,13,000 _________
Total 7,89,000 Total 7,89,000
In order to facilitate the redemption of Preference Shares at premium of 10%, the Company decided -
a. To sell all the investments for Rs. 30,000
b. To finance part of the redemption from company funds, subject to leaving a bank balance of Rs.
24,000; and
c. To issue minimum Equity Shares of Rs. 50 each at a premium of Rs. 10 per share to raise the balance
of funds required.
The preference shares were redeemed on the due date and the issue of Equity Shares was fully subscribed.
You are required to prepare:
i. The necessary Journal Entries to record the above transactions (including cash) and
ii. The Balance - Sheet as on completion.

You have only TWO choices –

Be STRONG and stand Firm
Or
Blow with the Breeze
3. 10

CA – INTERMEDIATE: ACCOUNTING BY CA. CS. ANSHUL A. AGRAWAL Connect CA. Anshul on