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CS Executive · Corporate Accounting and Financial Management · Related Aspects of Company Accounts

Kaveri Ltd redeems 2,000 preference shares of Rs 100 each, fully paid, at par. It makes a fresh issue of 1,200 equity shares of Rs 100 each at par for this purpose, and the balance is met from profits available for dividend. What amount is transferred to Capital Redemption Reserve?

Rs 80,000. The nominal value redeemed is Rs 2,00,000, of which Rs 1,20,000 is covered by the fresh issue proceeds. Only the part redeemed out of profits, Rs 80,000, must be transferred to Capital Redemption Reserve.

  1. ARs 2,00,000
  2. BRs 1,20,000
  3. CRs 80,000Correct
  4. DRs 3,20,000

Explanation

Nominal value redeemed = Rs 2,00,000. Fresh issue proceeds = Rs 1,20,000. CRR is needed for the portion redeemed out of profits: 2,00,000 - 1,20,000 = Rs 80,000. Rs 1,20,000 wrongly uses the proceeds instead of the shortfall.

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