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CA Intermediate · Advanced Accounting · Buyback of Securities

Tara Ltd buys back 30,000 equity shares of Rs 10 each at Rs 18 per share. The company has securities premium of Rs 1,50,000, general reserve of Rs 8,00,000 and no fresh issue proceeds. It uses securities premium first for the premium payable and the balance of the buyback from general reserve. What is the debit to General Reserve, including the CRR transfer, ignoring buyback expenses?

General Reserve is reduced by Rs 3,90,000. The Rs 2,40,000 premium is met Rs 1,50,000 from securities premium and Rs 90,000 from general reserve, and a further Rs 3,00,000 (nominal value) is transferred from general reserve to CRR, totalling Rs 3,90,000.

  1. ARs 2,40,000 (premium Rs 2,40,000 only)
  2. BRs 3,00,000 (nominal value only)
  3. CRs 3,90,000Correct
  4. DRs 5,40,000

Explanation

Total outflow = 30,000 x 18 = Rs 5,40,000. Premium = 30,000 x 8 = Rs 2,40,000, of which Rs 1,50,000 comes from securities premium, leaving Rs 90,000 from general reserve. Share capital Rs 3,00,000 is debited, then the same Rs 3,00,000 is moved from general reserve to CRR. General reserve debit = 90,000 + 3,00,000 = Rs 3,90,000. Rs 3,00,000 misses the premium balance.

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