CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures
Ishan Ltd redeems Rs 6,00,000 of 9% debentures at par by converting them into equity shares of Rs 10 each issued at Rs 12 per share. How many equity shares will be issued to the debenture holders?
Ishan Ltd will issue 50,000 equity shares. The debentures of Rs 6,00,000 are settled by shares issued at Rs 12 each, including a Rs 2 premium, so the number of shares is Rs 6,00,000 divided by Rs 12. Using the Rs 10 face value would be wrong.
- A50,000 sharesCorrect
- B60,000 shares
- C72,000 shares
- D42,000 shares
Explanation
Shares are issued at Rs 12 each, so the number of shares = 6,00,000 / 12 = 50,000. Dividing by the face value of Rs 10 gives 60,000, which ignores the premium. Securities premium credited = 50,000 x 2 = Rs 1,00,000.
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