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

Nanda Ltd has 8,000 10% preference shares of Rs 100 each, fully paid, redeemable at a premium of 5%. It issues 4,000 equity shares of Rs 100 each at par for the redemption. Balances before redemption: General Reserve Rs 6,00,000, Securities Premium Rs 1,00,000, Profit and Loss Rs 2,00,000. Premium on redemption is first provided from securities premium. What amount is transferred to Capital Redemption Reserve?

Capital Redemption Reserve equals the nominal value of shares redeemed out of profits, that is Rs 8,00,000 less the Rs 4,00,000 fresh issue proceeds, giving Rs 4,00,000. The redemption premium of Rs 40,000 is provided separately and does not change the CRR amount.

  1. ARs 4,00,000Correct
  2. BRs 3,60,000
  3. CRs 4,40,000
  4. DRs 8,00,000

Explanation

Nominal value redeemed = 8,000 x 100 = Rs 8,00,000. Fresh issue proceeds at par = Rs 4,00,000. CRR = Rs 8,00,000 - Rs 4,00,000 = Rs 4,00,000 from profits. The premium (Rs 40,000) does not affect the CRR amount; deducting it, or using nominal value without the fresh issue, gives the wrong options.

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