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s

_______________________________________________________________________________________________________

70095-21377 www.uncram.in ·
CA Sumit Mittal
O
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

_______________________________________________________________________________________________________

shares
depiorfPrefrence
_______________________________________________________________________________________________________

O A
⑦ (B)
_______________________________________________________________________________________________________

O E &
I or ⑪
_______________________________________________________________________________________________________

Fresh Issue Create CRR PS2 Akr

of equity
_______________________________________________________________________________________________________

Shares or
Preference equialent To Promin Redempt Al a
_______________________________________________________________________________________________________
or

Shares
equivalent Face value of Pref Shareholds
_______________________________________________________________________________________________________
To

T o Face value of Preference To be

_______________________________________________________________________________________________________

Prefere Shares To Redeemed

Prof
shold Als als
_______________________________________________________________________________________________________
,
Redeem To Back
_______________________________________________________________________________________________________

Note-CRR is To
_______________________________________________________________________________________________________
in Jetni
Preference ki
-

To created out Premium on

of
_______________________________________________________________________________________________________ Redemption
Face Value Redeem Komi
shares is
Free Reserves only of Preference
_______________________________________________________________________________________________________
utni face value Ki
that can be used to be written
off from
_______________________________________________________________________________________________________
Preference
equity or

forsividend Distribution P LAK GR A &

_______________________________________________________________________________________________________
or
any
in
issue Kodo -

Sequence
P& L , GR and .
g
_______________________________________________________________________________________________________

( Eg) e
.

e
.

sometimes Investment SPR Al cannot be used

_______________________________________________________________________________________________________
issue Allowance Reserve Premium
-debenture To write
off
_______________________________________________________________________________________________________
Kara nhi
Note of Redemption of Preference
-

SPR Capital -
_______________________________________________________________________________________________________

chlega
,

Reserve Revaluation
shares
v/s 52(3) of
.

I
,

_______________________________________________________________________________________________________
Reserve can't be used
C Act
Partly Paid 2013
-up shares
To Create <RR
if
.

- ,

_______________________________________________________________________________________________________
& CRR can be used to
issued then consider
O

issue Borns Shares only

_______________________________________________________________________________________________________
↑

Paid up value & not

[POLACOGR A/F Dr in
Je
any sequence
_______________________________________________________________________________________________________ -

Face Value (0-10) TO <RR Al

ofequity issued
70095-21377 www.uncram.in CA Sumit Mittal
I New share
Eg 5000 Old
Profence
shares
_______________________________________________________________________________________________________
-

-
-
J Equity &
_______________________________________________________________________________________________________

100 + 10 Premiums Z 12
-
Face Value 10
_______________________________________________________________________________________________________
,

f
_______________________________________________________________________________________________________
110 Reduction Value .
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

3
_______________________________________________________________________________________________________
How
ManyNew
Equity
shares are to be issued
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

FVofPSC =

LE 50000
=

equity
shares to be issued to
_______________________________________________________________________________________________________
To be redeem
.
law
Face Value & not Essue . comply
_______________________________________________________________________________________________________
Price
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

How much Bank A Balance is Required

To Redeem ?
_______________________________________________________________________________________________________

5000 sh x 110 = 8550000

_______________________________________________________________________________________________________

& Given thant Co has No Balance in Bank A &

_______________________________________________________________________________________________________
.

finance
S

shares to the redemption

wantsT o issue
equity
_______________________________________________________________________________________________________
in such a that Balance in Bank A remains 40000 .
_______________________________________________________________________________________________________
way
Shares To be issued
No
of =
_______________________________________________________________________________________________________
0

issue
.

To finance Price)
arrange
_______________________________________________________________________________________________________

49167 shares
_______________________________________________________________________________________________________
=
T

_______________________________________________________________________________________________________
To
comply both issue shares
Higher of alone in
_______________________________________________________________________________________________________

Higher of 50 or
49161
_______________________________________________________________________________________________________
, 000

shares
is 50
, 000
equity
70095-21377 www.uncram.in CA Sumit Mittal
Pref-Redemption
Master us or

OI B/s (Extract) -
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

ESC Investment
_______________________________________________________________________________________________________
170 000

20000 sh off Vioech

/Face 2)
Value
_______________________________________________________________________________________________________
Paid up
_______________________________________________________________________________________________________

PSC
_______________________________________________________________________________________________________

40 000 sh
of Fe ,00 each
,
_______________________________________________________________________________________________________
Paid
70
up
(Redeemable at Premium Cash Al 40 000
_______________________________________________________________________________________________________

of soush ) Bank Al Stukh

_______________________________________________________________________________________________________
.

R &S
_______________________________________________________________________________________________________

SPR

I
5L
_______________________________________________________________________________________________________

CRR L
_______________________________________________________________________________________________________
-

- P& L 32
_______________________________________________________________________________________________________

-GR 32
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
Finance Redemption
# To
of Prf of
sox Investment were sold at
_______________________________________________________________________________________________________
-

& 95000
_______________________________________________________________________________________________________
.

shares of Per shares

.
New
equity issued at E 13
_______________________________________________________________________________________________________
10 were

Final
Call Preference shareholders were made & received
_______________________________________________________________________________________________________
or

in full However at time of Redemption Whereabones

_______________________________________________________________________________________________________
.

of 500 PrefShare holders were not available

_______________________________________________________________________________________________________
.

C wanted
-
tooo in P& L to be
keft unutilised
_______________________________________________________________________________________________________
&

& want's 10000 Remaining Balance in Cash & Cash Equivalents.

_______________________________________________________________________________________________________
Also Prepare B/S (extract) Redemption
after .
_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

Aus-I
-
-

_______________________________________________________________________________________________________

(i) Bank al 95000

_______________________________________________________________________________________________________

To Invent 85000
_______________________________________________________________________________________________________
To P & L 10000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(ii) PS Final Call D 121 (40k 3)

_______________________________________________________________________________________________________
. +

To
Prof Stah 12h
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(iii) Bank Har 12h

_______________________________________________________________________________________________________
To Final Call 12L
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(iv) PSC Dr 40L (40k 100)+

_______________________________________________________________________________________________________

Premiums on Red of Druf D (40XS)

_______________________________________________________________________________________________________

To
Prof sholders &L
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(v) P &L Alo 2L

_______________________________________________________________________________________________________
To Premier 22
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

O .
N

O
-

N
W
Bank
.
.

W
P&L Cash &
_______________________________________________________________________________________________________

22 Old 3Lr beld 540000 42L

_______________________________________________________________________________________________________

(Balfir)
F
Gain 10000 95000
_______________________________________________________________________________________________________
1 03000
122
_______________________________________________________________________________________________________
c 7000 ↑

Balfir
A
_______________________________________________________________________________________________________
24-25L
&
old 60000
_______________________________________________________________________________________________________
310000
3 10000 -
-
_______________________________________________________________________________________________________
42 60L
.

42 60L
.

P& L ↓
-
103000
_______________________________________________________________________________________________________
= -

GR = 3L
_______________________________________________________________________________________________________
Max . CPR that can be made
-

403000 24-25L
_______________________________________________________________________________________________________
- =
-

13
_______________________________________________________________________________________________________
PSC f = 40L
_______________________________________________________________________________________________________
/ CRR
3000) 186538 46
=
_______________________________________________________________________________________________________ .

ESC Fu 3591000
_______________________________________________________________________________________________________
=
S

186 539
-

=
_______________________________________________________________________________________________________
10 ,
share
share
.
_______________________________________________________________________________________________________
I
359 700 ,

_______________________________________________________________________________________________________

gher
_______________________________________________________________________________________________________
He
_______________________________________________________________________________________________________

359 700 shares

.
_______________________________________________________________________________________________________
,

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

_______________________________________________________________________________________________________

Bank Ala Dr 46 76 100 (359200 &

3
x 1
_______________________________________________________________________________________________________
, ,

To ESC 35 97000
_______________________________________________________________________________________________________
,

1 07 9100 3
To SPR
_______________________________________________________________________________________________________
, ,

_______________________________________________________________________________________________________
P& C D 10 30
_______________________________________________________________________________________________________
GR O 3L
_______________________________________________________________________________________________________
TO CRR 403000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Pref sholder O 4147500

C 52500)
(2)
_______________________________________________________________________________________________________
-

To Bank 4144 500

_______________________________________________________________________________________________________
,

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

O
2 Following are Asses in of
shares
<

beach
to
Std 31/3/24
on
_______________________________________________________________________________________________________
.

Sa of
_______________________________________________________________________________________________________
10, 000

8000 shares
of10 each s Paid up
_______________________________________________________________________________________________________
,

ROS SPR 30 000

_______________________________________________________________________________________________________
- -

GR 4000
_______________________________________________________________________________________________________
P &L 42000
_______________________________________________________________________________________________________

CRR 500
_______________________________________________________________________________________________________

Investment-Allowance Reserve 8000

_______________________________________________________________________________________________________
C
I 3000
of this can't be used
for
Dividend Distubut
--

j
_______________________________________________________________________________________________________

Gov
Security Face Value 150000 Value
Book 140 our
_______________________________________________________________________________________________________
=

Bank Balance is 42000 .

_______________________________________________________________________________________________________

# For Redemption-
_______________________________________________________________________________________________________

Paid Final Call

-
Final Call was made but 200sh didn't
_______________________________________________________________________________________________________

hence shares were

forfeited
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
sold
40 %
of Consecurity at110 %
of Face Value
_______________________________________________________________________________________________________
- were

>
- 10000 Debentures were issued at 10 % Premium
_______________________________________________________________________________________________________

-
Preference shares are To be redeemed at 10 % Premium
_______________________________________________________________________________________________________

>
- Minimum Balance To be maintained is :-
_______________________________________________________________________________________________________

in Bank A 1000 +
_______________________________________________________________________________________________________

in P& L 2000
_______________________________________________________________________________________________________

~
Compute Minimum
equity shares to be issued
ofeach
_______________________________________________________________________________________________________

Premiums
at
of Interies
= 2
_______________________________________________________________________________________________________
.

& Pass Journal .

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

FV PSC To redeem = 7800 x 10 78000
_______________________________________________________________________________________________________
=

(19200)

O
_______________________________________________________________________________________________________

O
*
--
shares 800
_______________________________________________________________________________________________________
5850 =
10
_______________________________________________________________________________________________________
P&L Bank
_______________________________________________________________________________________________________

Loss bed 42000 Old 42000 85800

_______________________________________________________________________________________________________
on 20000

Investmet Gov Securit 36000

_______________________________________________________________________________________________________

Premium 7800
_______________________________________________________________________________________________________

⑬ar Fins ) 15600

_______________________________________________________________________________________________________
12200
·
_______________________________________________________________________________________________________
Defecture 11000 Old 18 Sop
_______________________________________________________________________________________________________
old 2000
_______________________________________________________________________________________________________
-

_______________________________________________________________________________________________________
-
P& L =
12200
_______________________________________________________________________________________________________

GR = 4000
_______________________________________________________________________________________________________

Invest 3000
_______________________________________________________________________________________________________
=
M CRR =
19200
_______________________________________________________________________________________________________
N

Can le made
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

·
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

11.158 ACCOUNTING

3. When preference shares are redeemed at par

Redeemable Preference Share Capital Account Dr.

To Preference Shareholders Account

4. When preference shares are redeemed at a premium
Redeemable Preference Share Capital Account Dr.

Premium on Redemption of Preference Shares Account Dr.

To Preference Shareholders Account

5. When payment is made to preference shareholders

Preference Shareholders Account Dr.

To Bank Account
6. For adjustment of premium on redemption
Profit and Loss Account Dr.
To Premium on Redemption of Preference Shares Account
ILLUSTRATION 1

Hinduja Company Ltd. had 5,000, 8% Redeemable Preference Shares of ₹ 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 ₹ 10 each fully paid up at par. You are required to pass necessary
Journal Entries including cash transactions in the books of the company.
SOLUTION
In the books of Hinduja Company Ltd.
Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

Bank A/c Dr. 5,00,000
To Equity Share Capital A/c 5,00,000
(Being the issue of 50,000 Equity Shares of ₹10
each at par for the purpose of redemption of
preference shares, as per Board Resolution No.
……..dated… ......)

© The Institute of Chartered Accountants of India

COMPANY ACCOUNTS 11.159

8% Redeemable Preference Share Capital A/c Dr. 5,00,000

To Preference Shareholders A/c 5,00,000
(Being the amount payable on redemption of
preference shares transferred to Preference
Shareholders Account)
Preference Shareholders A/c Dr. 5,00,000
To Bank A/c 5,00,000
(Being the amount paid on redemption of
preference shares)

ILLUSTRATION 2

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

In the books of C Ltd.

Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

Bank A/c Dr. 12,00,000
To Equity Share Capital A/c 10,00,000
To Securities Premium A/c 2,00,000
(Being the issue of 1,00,000 Equity Shares of ₹10
each at a premium of ₹2 per share as per Board’s
Resolution No….. dated )
10% Redeemable Preference Share Capital A/c Dr. 10,00,000
To Preference Shareholders A/c 10,00,000
(Being the amount payable on redemption of
preference shares transferred to Preference
Shareholders A/c)
Preference Shareholders A/c Dr. 10,00,000
To Bank A/c 10,00,000
(Being the amount paid on redemption of
preference shares)

© The Institute of Chartered Accountants of India

11.160 ACCOUNTING

Note: Amount required for redemption is ₹ 10,00,000. Therefore, face value of equity shares
to be issued for this purpose must be equal to ₹ 10,00,000. Premium received on new issue
cannot be used to finance the redemption.
ILLUSTRATION 3

G India Ltd. had 9,000 10% redeemable Preference Shares of ₹ 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 ₹ 9 each fully paid up.
You are required to pass necessary Journal Entries including cash transactions in the books of
the company.
SOLUTION
In the books of G India Limited
Journal

Date Particulars Dr. Cr. (₹)

(₹)
Bank A/c Dr. 90,000
To Equity Share Capital A/c 90,000
(Being the issue of 10,000 Equity Shares of ₹9 each at par,
as per Board’s Resolution No…….Dated…..)
10% Redeemable Preference Shares Capital A/c Dr. 90,000
To Preference Shareholders A/c 90,000
(Being the amount payable on redemption of preference
shares transferred to Preference Shareholders A/c)
Preference Shareholders A/c Dr. 90,000
To Bank A/c 90,000
(Being the amount paid on redemption of preference
shares)

5.4.3 Calculation of Minimum Fresh Issue of Shares

Sometimes, examination problem does not specify the number of shares to be issued for the
purpose of redemption of preference shares and requires that the minimum number of shares
should be issued to ensure that provisions of Section 55 of the Companies Act, 2013, are not
violated. This is done in four steps as given below:
(1) In such cases, the maximum amount of reserves and surplus available for redemption
is ascertained taking into account the balances appearing in the balance sheet before

© The Institute of Chartered Accountants of India

Accounts UNCRAM CLASSES

2. Redemption of Preference Shares

Q-1 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.

Q-2 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.

Q-3 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.

12/2022
16 L
25 L

Q-4: The Board of Directors of a Company decided to issue minimum number of equity shares
of Rs. 9 to redeem Rs. 500000 preference shares. The maximum amount of divisible profits
available for redemption is Rs. 300000. Calculate the number of shares to be issued by the
company to ensure that the 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.
Ans: Nominal value of preference shares Rs. 5,00,000
Maximum possible redemption out of profits Rs. 3,00,000
Minimum proceeds of fresh issue Rs. 5,00,000 – 3,00,000 = Rs. 2,00,000
Proceed of one share = Rs. 9
Minimum number of shares = 200000/9 = 22222.22 shares
As fractional shares are not permitted, the minimum number of shares to be issued is 22,223
shares. If shares are to be issued in multiples of 50, then the next higher figure which is a
multiple of 50 is 22,250. Hence, minimum number of shares to be issued in such a case is 22,250
shares.

Page 13
70095-21377 70095-21377 www.uncram.in @uncram.in
5 Aus
_______________________________________________________________________________________________________
-
-

_______________________________________________________________________________________________________

Face Value
of Preference
Shares
T o reden - 65000
_______________________________________________________________________________________________________

+ Premium = 6500
_______________________________________________________________________________________________________
E
⑳ Pla Bank Al To be used 1500
_______________________________________________________________________________________________________
⑳Bank
-

_______________________________________________________________________________________________________

6500 fold 48000 bld 31000 PSC A 65 0 000

_______________________________________________________________________________________________________
3500 Premium on
15000 6500
_______________________________________________________________________________________________________ Reduft
Balfig) 38000 (Balfeg
( _______________________________________________________________________________________________________
- 37500
Memmens
& 71500 To Prof Sh holder /500
Maximum
CRRthat
Equaly
--
.
shares 12000 Old
_______________________________________________________________________________________________________
madebe be issued

[
can To

18000-500 Holder
(1500
Prefsh
_______________________________________________________________________________________________________
83
F

To Bank
71500
_______________________________________________________________________________________________________
↓
FV
of Preference 65000
_______________________________________________________________________________________________________
=

arrange
To 37500
To be Redeemed P& L Als Der 6500
_______________________________________________________________________________________________________
Finance

(3so e
To Premium on Red 6500

thatcan
Es CRR
↓
_______________________________________________________________________________________________________
be made
Minimum shares to
_______________________________________________________________________________________________________
New
Amtof

bessued So
PSC Bank no a
_______________________________________________________________________________________________________
ESC or Jo
Value
Kiface
,
Losson Sale & All 3500 (P )
e
ese
_______________________________________________________________________________________________________
Minimum adagi
f To estment 18500
_______________________________________________________________________________________________________
To be issued

↳Share
of 250 shares
s
3500
_______________________________________________________________________________________________________
No

& oe
.
=

To be
issued
Bank
ds 37500 (750 x
_______________________________________________________________________________________________________ 5)
37500
_______________________________________________________________________________________________________
To Egsh aft -

_______________________________________________________________________________________________________
540 =
shares Eg Sh offl Dr 37500 .

_______________________________________________________________________________________________________
To ESC 37500
.
.

whichever is Higher = 750 stares To be issued

P& LAK Dr 27500
Shares
if Equity KiFace Value issued
70095-21377 758 350
www.uncram.in = = CA
TO Sumit
CRRMittal
21500

then <RR
actually required To be = 2500 #Balance in Del Ala
made is 38000-27500
=

(65000(+ 3)
500) = E10500
Ans 6 .

⑳
-
-

P& L Al ⑩
Bank Ak
_______________________________________________________________________________________________________

I
3500 Old 25000 Old 31000 ie Back no 15000
_______________________________________________________________________________________________________

6500 15000 7 , 500 P&Lor 3500

_______________________________________________________________________________________________________
&
Bolfig

Balfir old
00
1000 ToEestet 18500
_______________________________________________________________________________________________________
Old
↓
5000 -

_______________________________________________________________________________________________________
25000
25000
Additional Finance (ii) PSC Or 65006
_______________________________________________________________________________________________________
Max Mm that can be
Required Premon Red 6500
&
& Minimum
_______________________________________________________________________________________________________
.
.

Made-
T
shareso be issued To
Defshold
< / 500
_______________________________________________________________________________________________________

To arrange finance
FOPSC 65000
_______________________________________________________________________________________________________
=

To redeem E37500 Back (iii) 66000 &

(10o00
_______________________________________________________________________________________________________
=

Car
Price
TofgshaftC
68 00
issue
_______________________________________________________________________________________________________
share 60)
Eg_______________________________________________________________________________________________________
, 00 +

o
.

Mi
--
Face Value-
ke charge
50
face
value 66Eqshoff
, 000
_______________________________________________________________________________________________________
.

=
625egshares To ESL55000
_______________________________________________________________________________________________________
shares SPR 11000
100 TO
L
=

_______________________________________________________________________________________________________
&
= 1100 Shares
T o (iv) P& LAL 18000
Higher
_______________________________________________________________________________________________________
be issued TOPR 10000
_______________________________________________________________________________________________________
↓

so
,
if &L P Dr
6500
_______________________________________________________________________________________________________

ESC Ac Credit 55000 To Prem ou Red 6500

(1100x 50)
_______________________________________________________________________________________________________
=

CRR 10000=
_______________________________________________________________________________________________________
&
65000 (i)
sh Holder
Pref 71500
_______________________________________________________________________________________________________
S To Bak 71500
Actual
_______________________________________________________________________________________________________
P& LAC Bank Ala

gers
_______________________________________________________________________________________________________

3500 bod 25000 bld 31000 71500

_______________________________________________________________________________________________________
6500 15000
CRR 66000
10 000
70095-21377
, www.uncram.in oldSumit40500
CA Mittal
Old
Barfie
5000
- -

25K 25K
COMPANY ACCOUNTS 11.167

A
ILLUSTRATION 6
The following are the extracts from the Balance Sheet of ABC Ltd. as on 31st December, 2022.
Share capital: 40,000 Equity shares of ₹ 10 each fully paid – ₹ 4,00,000; 1,000 10% Redeemable
preference shares of ₹ 100 each fully paid – ₹ 1,00,000.
Reserve & Surplus: Capital reserve – ₹ 50,000; Securities premium – ₹ 50,000; General reserve –
₹ 75,000; Profit and Loss Account – ₹ 35,000
On 1st January 2023, 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.
SOLUTION

In the books of ABC Limited

Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

2023
Jan 1 10% Redeemable Preference Share Capital A/c Dr. 1,00,000
To Preference Shareholders A/c 1,00,000
(Being the amount payable on redemption
transferred to Preference Shareholders Account)
Preference Shareholders A/c Dr. 1,00,000
To Bank A/c 1,00,000
(Being the amount paid on redemption of
preference shares)
General Reserve A/c Dr. 75,000
Profit & Loss A/c Dr. 25,000
To Capital Redemption Reserve A/c 1,00,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)

Note: Securities premium and capital reserve (not being distributable profits) cannot be
utilised for transfer to Capital Redemption Reserve.

© The Institute of Chartered Accountants of India

COMPANY ACCOUNTS 11.169

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.
SOLUTION
S In the books of C Limited
Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

Bank A/c Dr. 2,50,000
To Equity Share Capital A/c 2,50,000
(Being the issue of 25,000 equity shares of ₹ 10
each at par as per Board’s resolution
No……dated…..)
Bank A/c Dr. 1,00,000
To 14% Debenture A/c 1,00,000
(Being the issue of 1,000 Debentures of
₹ 100 each as per Board’s Resolution
No…..dated……)
Profit & Loss A/c Dr. 50,000
To Capital Redemption Reserve A/c 50,000
(Being the amount transferred to Capital
Redemption Reserve Account as per the
requirement of the Act)
12% Redeemable Preference Share Capital A/c Dr. 3,00,000
Premium on Redemption of Preference Shares A/c Dr. 30,000
To Preference Shareholders A/c 3,30,000
(Being the amount payable on redemption
transferred to Preference Shareholders Account)
Preference Shareholders A/c Dr. 3,30,000
To Bank A/c 3,30,000
(Being the amount paid on redemption of
preference shares)
Profit & Loss A/c Dr. 30,000
To Premium on Redemption of 30,000
Preference Shares A/c
(Being the adjustment of premium on redemption
against Profits & Loss Account)

© The Institute of Chartered Accountants of India

Aus P .

- -
_______________________________________________________________________________________________________

1) Premium or Redemption of
10000 is to be written
off from
_______________________________________________________________________________________________________

POLAK or GR & not from SPR

_______________________________________________________________________________________________________

2 CRR can be created out

of Free Reserves that can be used
_______________________________________________________________________________________________________
-
↓
for
Dividend distribution
(Including Investment Allowance Reseave)
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
P& LAK = 20000
GR = , 000
80
Premium (10000)
_______________________________________________________________________________________________________

Balance
on -
Redeuft" Invest All Reserve
_______________________________________________________________________________________________________
10
, 000
=
5000
_______________________________________________________________________________________________________
-
Ant that can be used
for
CRP 10K + 60k + 5K
_______________________________________________________________________________________________________
=

= 75000
_______________________________________________________________________________________________________

face value PSC To redeem is 100000

of
_______________________________________________________________________________________________________

· Face value
of Equity
To be issued is 25000E
_______________________________________________________________________________________________________
-

=
of
_______________________________________________________________________________________________________
Face value share

e
equity
is
&
Total Cash soo
Required
C
= 110000
_______________________________________________________________________________________________________

Cash Available (98000)

_______________________________________________________________________________________________________
=
↓
- -
To be issued
12000 extra .
Required
_______________________________________________________________________________________________________
-

issuePrice Comply To
shares Law
_______________________________________________________________________________________________________
= 1200

Bank Als Dr To be issued

T o

~
25000
_______________________________________________________________________________________________________
finance
To
Egshaff 25000 arrange
_______________________________________________________________________________________________________
.

_______________________________________________________________________________________________________
is
her shares
Eqsh offADr 2 ooL

25000
To be
_______________________________________________________________________________________________________
actually
&

stares
issued = 2500

P &L Al 70095-21377
de 10
, 000 www.uncram.in CA Sumit Mittal
GR A Dr 60 000
Allowance & 5000
Investment
TO CRR 75
, 000
11.170 ACCOUNTING

Working Note:
Amount to be transferred to Capital Redemption Reserve Account

Face value of shares to be redeemed 3,00,000

Less: Proceeds from new issue (2,50,000)
Total Balance 50,000

&
ILLUSTRATION 8

The capital structure of a company consists of 20,000 Equity Shares of ₹ 10 each fully paid up
and 1,000 8% Redeemable Preference Shares of ₹ 100 each fully paid up (issued on 1.4.2021).

Undistributed reserve and surplus stood as: General Reserve ₹ 80,000; Profit and Loss Account
₹ 20,000; Investment Allowance Reserve out of which ₹ 5,000, (not free for distribution as
dividend) ₹ 10,000; Securities Premium ₹ 2,000, Cash at bank amounted to ₹ 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 ₹ 20,000 shall be retained in general
reserve and which should not be utilised.

Pass Journal Entries to give effect to the above arrangements.

SOLUTION
In the books of ……….
Journal Entries

Date Particulars Dr. (₹) Cr. (₹)

Bank A/c Dr. 25,000
To Equity Share Capital A/c 25,000
(Being the issue of 2,500 Equity Shares of
₹ 10 each at a premium of Re. 1 per share as per Board’s
Resolution No…..dated…….)
General Reserve A/c Dr. 60,000
Profit & Loss A/c Dr. 10,000
Investment Allowance Reserve A/c Dr. 5,000
To Capital Redemption Reserve A/c
75,000
(Being the amount transferred to Capital Redemption
Reserve Account as per the requirement of the Act)
8% Redeemable Preference Share Capital A/c Dr. 1,00,000

© The Institute of Chartered Accountants of India

COMPANY ACCOUNTS 11.171

Premium on Redemption of Preference Shares A/c Dr. 10,000

To Preference Shareholders A/c
1,10,000
(Being the amount paid on redemption transferred to
Preference Shareholders Account)
Preference Shareholders A/c Dr. 1,10,000
To Bank A/c 1,10,000
(Being the amount paid on redemption of preference
shares)
Profit & Loss A/c Dr. 10,000
To Premium on Redemption of Preference Shares A/c 10,000
(Being the premium payable on redemption is adjusted
against Profit & Loss Account)

Working Note:
No of Shares to be issued for redemption of Preference Shares:

Face value of shares redeemed ₹ 1,00,000

Less: Profit available for distribution as dividend:

General Reserve : ₹(80,000-20,000) ₹ 60,000

Profit and Loss (20,000 – 10,000 set aside for

adjusting premium payable on redemption of

preference shares) ₹10,000

Investment Allowance Reserve: (₹ 10,000-5,000) ₹ 5,000 (₹ 75,000)

₹ 25,000

Therefore, No. of shares to be issued = ₹ 25,000/₹10 = 2,500 shares.

5.5.4 Sale of Investments to Provide Sufficient Funds for

Redemption
Companies may have sufficient investments, which can be sold, in the market to arrange funds
for redemption of preference shares.

© The Institute of Chartered Accountants of India

what
if in 0 9 amount available in Barkak was 65000
_______________________________________________________________________________________________________
.

-
& fresh shares were to be issued
equity & 12
_______________________________________________________________________________________________________

(Face Value
10E)
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Total Bank Required = 110

, 000
_______________________________________________________________________________________________________

5000)
_______________________________________________________________________________________________________

42000 3500
equity shares O
_______________________________________________________________________________________________________
=

issue Price
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
PSC To redeem 100 000
_______________________________________________________________________________________________________
=

that
bcoal
a
CRD canalsoto
_______________________________________________________________________________________________________
shares
value
= <500
equity
_______________________________________________________________________________________________________

⑳
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

whichever is
Higher-3500 sh To be
_______________________________________________________________________________________________________
.

issued
_______________________________________________________________________________________________________

Bank

L I
Al Dr 42000 3500 12
_______________________________________________________________________________________________________
x

↓
ToESC 35,000

o
_______________________________________________________________________________________________________
TO SPR 7000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

&
FUDSC IL ⑦ P& CHL Dr 10000
_______________________________________________________________________________________________________
=

GR A Dr 55000
_______________________________________________________________________________________________________
tS TO CRR 65000
Fv
_______________________________________________________________________________________________________

35000 65000
_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

As-10
E
_______________________________________________________________________________________________________

(i) Preference share Final Call Akor

To
Pref Sh
15L

Capital 15L (5000

30
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
.

_______________________________________________________________________________________________________

Bank Dr 15L
_______________________________________________________________________________________________________
To
Pref Final
Sh 15L
Cals
_______________________________________________________________________________________________________
.

250000 x 100)
_______________________________________________________________________________________________________
50h
Fof To redeem =
PSC &s 50L
_______________________________________________________________________________________________________
25)

Ex shut
Premim or Red de 2500 000

el
_______________________________________________________________________________________________________

To
Prefst Holde 52 5L
_______________________________________________________________________________________________________ .

_______________________________________________________________________________________________________
CPR
-- G Dr 250 , 000
_______________________________________________________________________________________________________
To Prem or Red" 2 5L
_______________________________________________________________________________________________________
.

GRAD 230 5L
_______________________________________________________________________________________________________

TO ERR 27 5L Bank o 10L

_______________________________________________________________________________________________________
:

IOL
ToEgstaff
_______________________________________________________________________________________________________
.

(50000 x 20)
Balance not
3113/02 Bank
given
_______________________________________________________________________________________________________
#On
Balance Eshoth 10(
· Assuming Sufficient
_______________________________________________________________________________________________________
&

To ESC 10h
_______________________________________________________________________________________________________
Hai

De e
50000
_______________________________________________________________________________________________________
Allotment
_______________________________________________________________________________________________________
TO SPR
_______________________________________________________________________________________________________

Back - 5h
_______________________________________________________________________________________________________
D 17

Allotment I 17 5L
_______________________________________________________________________________________________________ :

70095-21377 www.uncram.in-
303/02Prof sh Holder
Bank
To
on
CA Sumit Mittal
52 5 L
.
52 . 5h
Are 11 .

Draf Final l
SC Da 15h
_______________________________________________________________________________________________________

15L
(50 +
30)
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

27 Bak o 14 40L
.
_______________________________________________________________________________________________________

Call in Arrae or 60 000 (2008 30)

_______________________________________________________________________________________________________
x

To Final Call 15L

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
(2000 100)
3) PSC
To
o

Pref sh r
200000

-refoure
-
Ak 140000
x
_______________________________________________________________________________________________________

(2000x70)
_______________________________________________________________________________________________________
.

To Calls in Arrear 60000

_______________________________________________________________________________________________________

) Perf sh
forfeiture Reserve 140000
_______________________________________________________________________________________________________

Capital 140000
_______________________________________________________________________________________________________
TO

pass

J
after
[
everthough ,
we
this
entry re-issue but
_______________________________________________________________________________________________________

inthis Case Re-issue is Not Possible as Other Pref

_______________________________________________________________________________________________________
shares are
being Redeemed - Transfering To <R
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

5) PSC De 48L (18000 x 100)

_______________________________________________________________________________________________________

Preinum on Redempt" Al Dr 240000 (4800x 5)

_______________________________________________________________________________________________________
-I
T

sh Holder
Prof 5040000
_______________________________________________________________________________________________________
To

_______________________________________________________________________________________________________
GR Ak Or
·
270 000
_______________________________________________________________________________________________________
To Promun or
Red" Ak 240, 000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
Bak 10 L (50000 20
_______________________________________________________________________________________________________

TO Eg sh off ich
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Eshaft 10L
_______________________________________________________________________________________________________
To ESC IOh
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

( ⑮
Altotnet Des 27050L 5000 x 35
_______________________________________________________________________________________________________

To SC 12 50h
_______________________________________________________________________________________________________
-

TOSPR 5L
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
Back d k- 50L
_______________________________________________________________________________________________________

To Allotmet 1 So L
_______________________________________________________________________________________________________
.

_______________________________________________________________________________________________________

fu PS2 Redeemed 481 ↑

of
=
_______________________________________________________________________________________________________

=
frof
as
2 ) ESC issued
_______________________________________________________________________________________________________
-

(50
x 45
7
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

GR 29- 50(
_______________________________________________________________________________________________________

TORR 25 50h
_______________________________________________________________________________________________________
.

Pref sh Hold de 50 40L

:
_______________________________________________________________________________________________________

To Bank 50 40L
_______________________________________________________________________________________________________
.

70095-21377 www.uncram.in CA Sumit Mittal

COMPANY ACCOUNTS 11.175

instead of reissuing the forfeited shares because redemption of these shares is due
immediately or in near future. In this case, the journal entry for forfeiture is passed as usual,
which will be as follows:
Preference Share Capital A/c # Dr
(#Called up share capital only relating to the shares to be forfeited)
To Calls In Arrears A/c
To Shares Forfeited A/c *
(*Amount actually collected on shares forfeited. This will be equal to the balancing amount)

NOTE: But it should be noted, in this case, that the number of shares to be redeemed will be
reduced by the number of shares so forfeited. Further, since the preference shares are getting
redeemed, the forfeited shares will not be reissued and hence the balance in the Shares

God
Forfeited A/c should be transferred to Capital Reserve by passing the following journal entry:
Shares Forfeited A/c Dr.
To Capital Reserve A/c

l
ILLUSTRATION 10
Q -
10
With the help of the details in Illustration 9 above and further assuming that the Preference
-
-

Shareholders holding 2,000 shares fail to make the payment for the Final Call made under
Section 55, you are asked to pass the necessary Journal Entries and show the relevant extracts
from the balance sheet as on 31st March, 2022 with the corresponding figures as on 31st
December, 2021 assuming that the shares in default are forfeited after giving proper notices.
(Ignore date column)
SOLUTION

Journal Entries

₹ ₹
8% Preference Share Final Call A/c Dr. 15,00,000
To 8% Preference Share Capital A/c 15,00,000
(For final call made on preference shares @
₹ 30 each to make them fully paid up)

Bank A/c (48,000 x ₹30) Dr. 14,40,000

Calls in arrears A/c (2,000x ₹30) 60,000

To 8% Preference Share Final Call A/c 15,00,000

(For receipt of final call money on preference shares)

11.176 ACCOUNTING

Preference Share Capital A/c (2000 X Dr. 2,00,000

₹100)To Calls in Arrears A/c (2000 X ₹30) 60,000
To Shares Forefeited A/c (2000 X ₹70) 1,40,000
(For Shares Forefeited after shareholders fail to pay the Final
Call)
Bank A/c Dr. 10,00,000
To Equity Share Application A/c 10,00,000
(For receipt of application money on 50,000 equity
shares @ ₹ 20 per share)
Equity Share Application A/c Dr. 10,00,000
To Equity Share Capital A/c 10,00,000
(For capitalisation of application money received)
Equity Share Allotment A/c Dr. 17,50,000
To Equity Share Capital A/c 12,50,000
To Securities Premium A/c 5,00,000
(For allotment money due on 50,000 equity shares @ ₹
35 per share including a premium of ₹ 10 per share)
Bank A/c Dr. 17,50,000
To Equity Share Allotment A/c 17,50,000
(For receipt of allotment money on equity shares)
General Reserve A/c Dr. 25,50,000
To Capital Redemption Reserve A/c 25,50,000
(For transfer of CRR the amount not covered by the
proceeds of fresh issue of equity shares i.e., 48,00,000 –
10,00,000 – 12,50,000)
8% Preference Share Capital A/c Dr. 48,00,000
Premium on Redemption of Preference Shares A/c Dr. 2,40,000
To Preference Shareholders A/c 50,40,000
(For amount payable to preference shareholders on
redemption at 5% premium)
Preference Shareholders A/c Dr. 50,40,000
To Bank A/c 50,40,000
(For amount paid to preference shareholders)

COMPANY ACCOUNTS 11.177

General Reserve A/c Dr. 2,40,000

To Premium on Redemption A/c 2,40,000
(For writing off premium on redemption of preference
shares)

D
Shares Forfeited A/c Dr. 1,40,000
=> To Capital Reserve A/c 1,40,000
(For transferring balance to Capital Reserve A/c after
redemption of preference shares)

Note: Amount received (excluding premium) on fresh issue of shares till the date of
redemption should be considered for calculation of proceeds of fresh issue of shares. Thus,
proceeds of fresh issue of shares ₹ 22,50,000 (₹10,00,000 application money plus ₹ 12,50,000
received on allotment towards share capital) will be considered.

SUMMARY
 Redemption is the process of repaying an obligation, at prearranged amount and
 timing.

 In India, the issue and redemption of preference shares is governed by Section 55 of
 the Companies Act, 2013.

 A company limited by shares if so authorised by its Articles, may issue preference
shares which at the option of the company*, are liable to be redeemed. It should be
noted that:

(a) no shares can be redeemed except out of profit of the company which would
otherwise be available for dividend or out of proceeds of fresh issue of shares
made for the purpose of redemption;

(b) no such shares can be redeemed unless they are fully paid;

* A company cannot issue irredeemable preference shares.

 Methods of redemption of fully paid-up preference shares: (i) by Fresh issue of
shares; (ii) by Capitalisation of undistributed profits; (iii) Combination of (i) and (ii),

COMPANY ACCOUNTS 11.181

2. Section 55 of the Companies Act, 2013, deals with provisions relating to redemption
of preference shares. It ensures that there is no reduction in shareholders’ funds due
to redemption and, thus, the interest of outsiders is not affected. For details, refer para
5.3 of the chapter.

Practical Questions

A 1. In the books of B Limited

Journal Entries

Particulars Dr. (₹) Cr. (₹)

12% Redeemable Preference Share Capital A/c Dr. 1,80,000
Premium on Redemption of Preference Shares A/c Dr. 36,000
To Preference Shareholders A/c 2,16,000
(Being the amount payable on redemption of 18,000
12% Redeemable Preference Shares transferred to
Shareholders Account)

End
E
Preference Shareholders A/c Dr. 2,14,800
To Bank A/c 2,14,800
(Being the amount paid on redemption of 17,900
preference shares)
Bank A/c Dr. 33,000
To Equity Shares Capital A/c 30,000
To Securities Premium A/c 3,000
(Being the issue of 3,000 Equity Shares of
₹ 10 each at a premium of 10% as per Board’s Resolution
No……. Dated……)
General Reserve A/c Dr. 1,20,000
Profit & Loss A/c Dr. 30,000
To Capital Redemption Reserve A/c 1,50,000
(Being the amount transferred to Capital Redemption
Reserve A/c as per the requirement of the Act.)
Capital Redemption Reserve A/c Dr. 1,20,000
To Bonus to Shareholders A/c 1,20,000
(Being the amount appropriated for issue of bonus share
in the ratio of 5:2 as per shareholders Resolution No.…..
dated…)

11.182 ACCOUNTING

Bonus to Shareholders A/c Dr. 1,20,000

To Equity Share Capital A/c 1,20,000
(Being the utilisation of bonus dividend for issue of
12,000 equity shares of ₹ 10 each fully paid)
Profit & Loss A/c Dr. 36,000
To Premium on Redemption of Preference Shares 36,000
A/c
(Being premium on redemption of preference shares
adjusted against to Profit & Loss Account)

Working Note:
(1) Partly paid-up preference shares cannot be redeemed.
(2) Amount to be Transferred to Capital Redemption Reserve Account

Face value of share to be redeemed ₹ 1,80,000

Less: Proceeds from fresh issue (excluding premium) (₹ 30,000)

₹ 1,50,000

(3) No bonus shares on 3,000 equity shares issued for redemption.

Note: Bonus shares does not result in receipt of cash, and hence the increase in share
capital on account of bonus issue cannot be considered in determination of amount
to be transferred to Capital Redemption Reserve.

Ans -

13
_______________________________________________________________________________________________________
-
-

102
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Lis Pref
. Dividendal 10000
_______________________________________________________________________________________________________

To
Preference Shareholder 10000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Prefsh holder 10000 Dal Accor 10006

_______________________________________________________________________________________________________
To Bank 10000 To
Pref Divided 1 , 0000
_______________________________________________________________________________________________________
.

_______________________________________________________________________________________________________

(ii) PSC or 12
_______________________________________________________________________________________________________

Premium or Redempt Dr 10000

_______________________________________________________________________________________________________

To
PrefSh Holder 110000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Pref sh Holder , 000

110 P& LAK De 10000
_______________________________________________________________________________________________________
Red 10000
to Bank 1,0000 To Premium or
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(iii) Bank Al Dr 9000

_______________________________________________________________________________________________________
Loss Sale (P 1) A
&
or or 10,000
O DELAIM 10000
_______________________________________________________________________________________________________
To Investment 100000 To loss 10000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(iv) AR Alcor Ih
_______________________________________________________________________________________________________

TO CRR IL
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

(V) CRR Ak Dr L
(1000 shares 10)
_______________________________________________________________________________________________________
To Bonus
T o egsh Holder L

70095-21377 www.uncram.in ⑦ Bonns regist

CA Sumit
&
Mittal
IL
To ESC IL
Ar 19
-
_______________________________________________________________________________________________________
PSC or 150000
_______________________________________________________________________________________________________

Premium Redempt 15000

_______________________________________________________________________________________________________
on
-

To
pref shareholds 165, 000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

Pref Holder 165000

_______________________________________________________________________________________________________
To Bank 165000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

P &L Alon 15000

_______________________________________________________________________________________________________

To Prem on Redenft/5000
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________
P& LAK De 60000
_______________________________________________________________________________________________________

GRA Dr 90 , 000
_______________________________________________________________________________________________________
TO CRR 150000
_______________________________________________________________________________________________________

Bank : Assuming sufficient

C
silent
_______________________________________________________________________________________________________
#Ques
Shares)
on

Balance exist in Bank to redeem

prefreme
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

Accounts UNCRAM CLASSES

You are required to prepare necessary Journal Entries including cash transactions in the books of
the company.
Ans:
Jan 1 10% Redeemable Preference Share Capital A/c 1,50,000
Premium on Redemption of Preference Shares Dr. 15,000
To Preference Shareholders A/c 1,65,000
Preference Shareholders A/c 1,65,000
Dr.
To Bank A/c 1,65,000
General Reserve A/c Dr. 1,00,000

Profit & Loss A/c Dr. 50,000

To Capital Redemption Reserve A/c 1,50,000
Profit & Loss A/c Dr. 15,000
To Premium on Redemption of Preference Shares A/c 15,000

⑬Q-17 The following are the extracts from the Balance Sheet of Meera Ltd. as on 31st December,
2017. Share capital: 60,000 Equity shares of Rs10 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 prepare necessary Journal Entries
including cash transactions in the books of the company.
Ans- In the books of Meera Limited Journal Entries
Jan 1 10% Redeemable Preference Share Capital A/c Dr. 1,50,000
Premium on Redemption of Pref. shares Dr. 15,000
To Preference Shareholders A/c 1,65,000
Preference Shareholders A/c Dr. 1,65,000
To Bank A/c 1,65,000
Profit & Loss A/c Dr. 15,000
To Premium on Redemption of Pref. Shares 15,000
General Reserve A/c Dr. 1,12,500
Profit & Loss A/c Dr. 37,500
To Capital Redemption Reserve A/c 1,50,000
Note: Securities premium and capital reserve cannot be utilized for transfer to Capital
Redemption Reserve.

⑯
Q-18 The capital structure of a AP Ltd. consists of 20,000 Equity Shares of Rs10 each fully paid
up and 1,000 8% Redeemable Preference Shares of Rs100 each fully paid up (issued on
1.4.20X1). Undistributed reserve and surplus stood as: General Reserve Rs 80,000; Profit and Loss

Page 27
70095-21377 70095-21377 www.uncram.in @uncram.in
Accounts UNCRAM CLASSES

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.
Ans- In the books of AP Ltd. Journal Entries
Bank A/c Dr. 25,000
To Equity Share Capital A/c 25,000
8% Redeemable Preference Share Capital A/c Dr. 1,00,000
Premium on Redemption of Preference Shares A/c Dr. 10,000
To Preference Shareholders A/c 1,10,000
Preference Shareholders A/c Dr. 1,10,000
To Bank A/c 1,10,000
Profit & Loss A/c Dr 10,000
To Premium on Redemption of Preference Shares A/c 10,000
General Reserve A/c Dr 60,000
Profit & Loss A/c Dr 10,000
Investment Allowance Reserve A/c 5,000
To Capital Redemption Reserve A/c Dr 75,000
Working note;
No of Shares to be issued for redemption of Preference Shares:
Face value of shares redeemed Rs 1,00,000
Less: Profit available for distribution as dividend:
General Reserve: Rs 80,000-20,000) = Rs 60,000
Profit and Loss (20,000 – 10,000 set aside for adjusting premium payable on redemption of
preference shares) Rs 10,000
Investment Allowance Reserve: (Rs 10,000-5,000) Rs 5,000= (Rs 75,000)/ Rs 25,000
Therefore, No. of shares to be issued = 25,000/Rs10 = 2,500 shares.

O
Q-19 The following are the extracts from the Balance Sheet of ABC Ltd. as on 31/12/20X1: Share
capital: 50,000 Equity shares of ₹10 each fully paid – ₹5,00,000; 2,000 10% Redeemable
preference shares of ₹100 each fully paid – ₹ 2,00,000. Reserve & Surplus: Capital
reserve – ₹2,00,000; General reserve –₹ 2,00,000; Profit and Loss Account – ₹75,000. On
1st January 20X2, 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.
Ans- In the books of ABC Limited: Journal Entries
Jan 1 10% Redeemable Preference Share Capital A/c Dr. 2,00,000

Page 28
70095-21377 70095-21377 www.uncram.in @uncram.in
Accounts UNCRAM CLASSES

Premium on Redemption of Preference Shares 10,000

To Preference Shareholders A/c 2,10,000
Preference Shareholders A/c Dr. 2,10,000
To Bank A/c 2,10,000
General Reserve A/c Dr. 2,00,000
To Capital Redemption Reserve A/c 2,00,000
Profit & Loss A/c Dr. 10,000
To Premium on Redemption of Preference Shares A/c 10,000
Note: Capital reserve cannot be utilized for transfer to Capital Redemption Reserve.

Q-20: Write section 55

Q-21 Sir Hum section 68 bhi likheinge, okay likhdo chlo

as
Q-22 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:
(i) 40,000 Equity Shares of Rs 10 each at par
(ii) 2,000 12% Debentures of Rs 100 each.
(a) The issue was fully subscribed and all accounts were received in full. The payment was duly
made. The company had sufficient profits.
(b) Show journal entries in the books of the company.
Ans- In the books of Dheeraj Limited Journal Entries
Particulars Dr. (Rs) Cr. (Rs)
Bank A/c 4,00,000
To Equity Share Capital A/c 4,00,000
Bank A/c 2,00,000
To 12% Debenture A/c 2,00,000
10% Redeemable Preference Share Capital A/c 5,00,000
Premium on Redemption of Preference Shares A/c 50,000
To Preference Shareholders A/c 5,50,000
Preference Shareholders A/c 5,50,000
To Bank A/c 5,50,000
Profit & Loss A/c 50,000
To Premium on Redemption of Preference Shares A/c 50,000
Profit & Loss A/c 1,00,000
To Capital Redemption Reserve A/c (Working Note) 1,00,000
Working Note: Amount to be transferred to Capital Redemption Reserve Account
Face value of shares to be redeemed Rs 5,00,000
Less: Proceeds from new issue (Rs 4,00,000)

Page 29
70095-21377 70095-21377 www.uncram.in @uncram.in
Accounts UNCRAM CLASSES

Balance Rs 1,00,000

Q-23 Explain the conditions when a company should issue new equity shares for redemption of
the preference shares. Also discuss the advantages and disadvantages of redemption of
preference shares by issue of equity shares.
Ans - A company may prefer issue of new equity shares in the following situations:
(a) When the company realizes that the capital is needed permanently and it makes more sense
to issue Equity Shares in place of Redeemable Preference Shares which carry a fixed rate of
dividend.
(b) When the balance of profit, which would otherwise be available for dividend, is insufficient.
(c) When the liquidity position of the company is not good enough.
Advantages of redemption of preference shares by issue of fresh equity shares
(1) No cash outflow of money is required – now or later.
(2) New equity shares may be valued at a premium.
(3) Shareholders retain their equity interest.
Disadvantages of redemption of preference shares by issue of fresh equity shares
(1) There will be dilution of future earnings;
(2) Share-holding in the company is changed.

⑪
Q-24: The Summarized Balance Sheet of Clean Ltd. as on 31st March, 2019 is as follows:
1. Shareholder's funds:
(a) Share Capital 5,80,000
(b) Reserves and Surplus 96,000
2. Current Liabilities:
Trade Payables 1,13,000
Total 7,89,000
ASSETS:
1. Non-Current Assets
(a) Property, Plant and Equipment Tangible Assets 6,90,000

(b) Non-current investments 37,000

2. Current Assets
Cash and cash equivalents (Bank) 62,000
Total 7,89,000
The Share Capital of the company consists of ₹ 50 each Equity shares of ₹ 4,50,000 and ₹ 100
each 8% Redeemable Preference Shares of ₹ 1,30,000 (issued on 1.4.2017). Reserves and Surplus
comprises statement of profit and loss 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 ₹ 30,000.

Page 30
70095-21377 70095-21377 www.uncram.in @uncram.in
Accounts UNCRAM CLASSES

(b) To finance part of redemption from company funds, subject to, leaving a Bank balance of
₹ 24,000.
(c) To issue minimum equity share of ₹ 50 each at a premium of ₹ 10 per share to raise the
balance of funds required.
You are required to
(1) Pass Journal Entries to record the above transactions.
(2) Prepare Balance Sheet after completion of the above transactions.
Ans- Journal Entries
Particulars Dr. (₹) Cr. (₹)
1 Bank A/c Dr. 75,000
To Share Application A/c 75,000
2 Share Application A/c Dr. 75,000
To Equity Share Capital A/c 62,500
To Securities Premium A/c 12,500
3 Preference Share Capital A/c Dr. 1,30,000
Premium on Redemption of Preference Shares A/c Dr. 13,000
To Preference Shareholders A/c 1,43,000
4 Profit and Loss A/c Dr. 13,000
To Premium on Redemption of Preference Shares A/c 13,000
5 Bank A/c Dr. 30,000
Profit and Loss A/c (loss on sale) A/c Dr. 7,000
To Investment A/c 37,000
6 Preference Shareholders A/c Dr. 1,43,000
To Bank 1,43,000
7 Profit and Loss A/c Dr. 67,500
To Capital Redemption Reserve A/c 67,500

Page 31
70095-21377 70095-21377 www.uncram.in @uncram.in
_______________________________________________________________________________________________________

_______________________________________________________________________________________________________

70095-21377 www.uncram.in CA Sumit Mittal

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