CS Executive · Corporate Accounting and Financial Management · Related Aspects of Company Accounts
Asha Ltd has paid-up equity capital of Rs 60,00,000 and free reserves of Rs 40,00,000, and no preference capital. Applying the 25% limit on the aggregate of paid-up capital and free reserves, what is the maximum buy-back amount permitted?
The maximum buy-back is Rs 25,00,000. The Act limits a buy-back to 25% of the aggregate of paid-up capital and free reserves, which here is Rs 1,00,00,000. Applying 25% to paid-up capital alone would wrongly give Rs 15,00,000.
- ARs 15,00,000
- BRs 25,00,000Correct
- CRs 10,00,000
- DRs 40,00,000
Explanation
Aggregate of paid-up capital and free reserves = 60,00,000 + 40,00,000 = Rs 1,00,00,000. 25% of this is Rs 25,00,000. Rs 15,00,000 results from applying 25% to paid-up capital only, which is the wrong base.
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