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CA Intermediate · Advanced Accounting · Buyback of Securities

Meghdoot Ltd has 8,00,000 equity shares of Rs 10 each fully paid. Its shareholders' approval is by a special resolution to buy back shares. Assuming all other conditions are met and the buyback is to be made from free reserves, what is the maximum number of equity shares it can buy back in a year under the 25% of total paid-up equity capital limit?

The company can buy back at most 2,00,000 equity shares in the year. The annual ceiling on equity shares bought back is 25% of the total paid-up equity capital, and 25% of 8,00,000 shares equals 2,00,000 shares.

  1. A1,00,000 shares
  2. B2,00,000 sharesCorrect
  3. C4,00,000 shares
  4. D2,50,000 shares

Explanation

The limit on the equity shares bought back in a financial year is 25% of the total paid-up equity capital. 25% of 8,00,000 = 2,00,000 shares. The 1,00,000 figure wrongly uses 12.5%, and 4,00,000 uses 50%.

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