CA Foundation · Accounting · Company Accounts
Asha Ltd. redeems 5,000 preference shares of ₹100 each, fully paid, at par. It has no fresh issue and uses a free reserve to meet the redemption. What amount must be transferred to Capital Redemption Reserve (CRR)?
₹5,00,000 must be transferred to Capital Redemption Reserve. When preference shares are redeemed out of profits and no fresh shares are issued, an amount equal to the nominal value of the shares redeemed (5,000 × ₹100) is transferred from profits to CRR.
- A₹5,00,000Correct
- B₹2,50,000
- CNil
- D₹50,000
Explanation
When shares are redeemed out of profits with no fresh issue, the nominal value redeemed (5,000 × ₹100 = ₹5,00,000) is transferred to CRR. A wrong answer of nil would assume no transfer is needed because redemption is at par.
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