Skip to content

CA Intermediate · Advanced Accounting · Buyback of Securities

Shreya Ltd has paid-up equity capital of Rs 40,00,000 (4,00,000 shares of Rs 10) and free reserves of Rs 60,00,000. Its total shareholders' funds are Rs 1,00,00,000 with no other reserves. Under a board-approved buyback (no special resolution), what is the maximum amount it can spend, given the 10% limit on paid-up capital plus free reserves?

The maximum is Rs 10,00,000. Without a special resolution, a buyback authorised by the board is capped at 10% of the total paid-up capital and free reserves, which is 10% of Rs 1,00,00,000.

  1. ARs 25,00,000
  2. BRs 10,00,000Correct
  3. CRs 40,00,000
  4. DRs 6,00,000

Explanation

Board-resolution buyback is limited to 10% of the aggregate of paid-up capital and free reserves: 10% of (40,00,000 + 60,00,000) = Rs 10,00,000. Rs 25,00,000 is the 25% limit applicable with a special resolution, which is wrong here because no special resolution was passed.

Did you get it right without looking?

One question tells you little. A timed set on Buyback of Securities shows your real accuracy, how long you take and where you lose marks.

Practise Buyback of SecuritiesFree diagnostic mock

More Buyback of Securities questions