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CA Intermediate · Advanced Accounting · Buyback of Securities

Meghna Textiles Ltd bought back 20,000 fully paid equity shares of Rs 10 each at Rs 15 per share out of its free reserves. Under the Companies Act, 2013 and the accounting treatment taught at CA Intermediate, what amount must be transferred to Capital Redemption Reserve (CRR) on this buyback?

Rs 2,00,000 must be transferred to Capital Redemption Reserve. When shares are bought back out of free reserves, CRR is credited with the nominal value of the shares bought back, which is 20,000 shares multiplied by Rs 10 each.

  1. ARs 2,00,000Correct
  2. BRs 3,00,000
  3. CRs 1,00,000
  4. DRs 5,00,000

Explanation

When buyback is out of free reserves, an amount equal to the nominal value of shares bought back must be transferred to CRR. Nominal value = 20,000 x Rs 10 = Rs 2,00,000. Rs 3,00,000 is the total buyback consideration, which wrongly uses the price paid instead of the nominal value.

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