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

Under the Companies Act, 2013, the Capital Redemption Reserve Account created on redemption of preference shares out of profits may be applied by the company for which of the following purposes?

The Capital Redemption Reserve may be used to pay up unissued shares issued to members as fully paid bonus shares. Unlike securities premium, it cannot be used for preliminary expenses or redemption premium, and it cannot fund dividends, because it is treated like paid-up share capital.

  1. APaying up unissued shares to be issued to members as fully paid bonus sharesCorrect
  2. BPaying dividend to equity shareholders
  3. CWriting off preliminary expenses of the company
  4. DProviding for the premium payable on redemption of the preference shares

Explanation

The Act permits the Capital Redemption Reserve Account to be applied in paying up unissued shares issued to members as fully paid bonus shares. Writing off preliminary expenses and providing for redemption premium are uses permitted for the securities premium account, not for CRR. Dividend payment is not a permitted use.

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