Skip to content

CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures

Dhruv Ltd issued Rs 10,00,000 of 10% debentures at a 4% discount, redeemable at a 10% premium, with discount and premium written off earlier. The company converts them at the redemption value into equity shares of Rs 10 each issued at Rs 12.50. Securities Premium credited on conversion, assuming Rs 1,00,000 premium on redemption is provided out of Securities Premium Account beforehand, is?

The Securities Premium credited on conversion is Rs 2,20,000. The debentures convert at the Rs 11,00,000 redemption value, giving 88,000 shares at Rs 12.50, so share capital is Rs 8,80,000 and the premium is Rs 2.50 per share. The earlier provision for redemption premium is a separate entry.

  1. ARs 2,20,000Correct
  2. BRs 1,00,000
  3. CRs 1,20,000
  4. DRs 2,00,000

Explanation

Redemption value = 11,00,000. Shares = 11,00,000/12.50 = 88,000. Share capital = 8,80,000. Premium on issue = 88,000 x 2.50 = Rs 2,20,000. The earlier Rs 1,00,000 provision is a separate debit and does not change this credit; 1,20,000 wrongly nets it.

Did you get it right without looking?

One question tells you little. A timed set on Redemption of Preference Shares, Issue and Redemption of Debentures shows your real accuracy, how long you take and where you lose marks.

Practise Redemption of Preference Shares, Issue and Redemption of DebenturesFree diagnostic mock

More Redemption of Preference Shares, Issue and Redemption of Debentures questions