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CA Intermediate · Advanced Accounting · Buyback of Securities

Meghdoot Ltd has 2,00,000 equity shares of Rs 10 each fully paid. Its paid-up capital plus free reserves is Rs 60,00,000. The company wants to buy back shares through a board resolution only, without a special resolution. Applying the 10% limit on paid-up capital and free reserves, what is the maximum amount it can spend on the buyback?

The maximum is Rs 6,00,000. When a buyback is authorised only by a board resolution, the amount cannot exceed 10% of the total of paid-up capital and free reserves, and 10% of Rs 60,00,000 is Rs 6,00,000. The 25% limit needs a special resolution.

  1. ARs 2,00,000
  2. BRs 6,00,000Correct
  3. CRs 15,00,000
  4. DRs 20,00,000

Explanation

Buyback by board resolution is limited to 10% of paid-up capital and free reserves. 10% of Rs 60,00,000 = Rs 6,00,000. Rs 15,00,000 (25%) applies only where a special resolution has been passed, so it is wrong here.

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