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

Kiran Ltd has 3,000 preference shares of Rs 100 each, fully paid, redeemable at a 5% premium. It issues 2,000 equity shares of Rs 100 each at par for redemption, and the balance is paid from profits. Securities premium account has Rs 50,000 and is used for the premium. The amount to be transferred to Capital Redemption Reserve is:

Rs 1,00,000. Nominal value redeemed is Rs 3,00,000 and fresh equity proceeds are Rs 2,00,000, so the shortfall of Rs 1,00,000 is funded from profits and must be transferred to Capital Redemption Reserve. The redemption premium does not affect the CRR amount.

  1. ARs 1,00,000Correct
  2. BRs 3,00,000
  3. CRs 1,15,000
  4. DRs 1,50,000

Explanation

Nominal value redeemed is 3,000 x 100 = Rs 3,00,000. Fresh issue proceeds at par are Rs 2,00,000. CRR = 3,00,000 - 2,00,000 = Rs 1,00,000. Including the premium (Rs 15,000) in the CRR transfer would be wrong, as CRR is based only on nominal value.

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