CA Intermediate · Advanced Accounting · Buyback of Securities
Ritu Ltd bought back 10,000 equity shares of Rs 10 each at Rs 14 per share, entirely out of its free reserves (no securities premium exists). Which of the following correctly states the total amount debited to free reserves in the books for the premium and for CRR creation, taken together?
Free reserves are reduced by Rs 1,40,000 in total. Rs 40,000 is the premium on buyback, charged to free reserves because there is no securities premium, and Rs 1,00,000 is the nominal value transferred to Capital Redemption Reserve.
- ARs 1,40,000Correct
- BRs 1,00,000
- CRs 40,000
- DRs 1,40,000 for premium alone and Rs 1,00,000 for CRR
Explanation
Premium on buyback = 10,000 x Rs 4 = Rs 40,000, debited to free reserves as no securities premium exists. Nominal value Rs 1,00,000 is transferred from free reserves to CRR. Together, free reserves are debited by Rs 1,40,000. Rs 40,000 omits the CRR transfer.
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