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CA Intermediate · Advanced Accounting · Buyback of Securities

Meghdoot Textiles Ltd has paid-up equity share capital of ₹8 crore and free reserves of ₹12 crore as per its latest audited balance sheet. Its articles authorise buyback and it wants to buy back shares on the strength of a Board resolution alone, without passing a special resolution. Up to what maximum amount can the buyback be approved by the Board?

The Board can approve a buyback only up to 10% of the aggregate of paid-up capital and free reserves. Here the aggregate is ₹20 crore (₹8 crore plus ₹12 crore), so the limit is ₹2 crore. Anything larger, up to the 25% ceiling, needs a special resolution of shareholders.

  1. A₹2 croreCorrect
  2. B₹5 crore
  3. C₹0.80 crore
  4. D₹1.20 crore

Explanation

A Board resolution is enough only up to 10% of the aggregate of paid-up capital and free reserves. The aggregate is 8 + 12 = ₹20 crore, so 10% is ₹2 crore. ₹5 crore is the 25% overall ceiling, which needs a special resolution. ₹0.80 crore and ₹1.20 crore apply 10% to only one component.

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