CA Foundation · Accounting · Company Accounts
Under the Companies Act, 2013, which of the following is a correct statement about the buy-back of shares by a company?
Buy-back may be financed from free reserves, securities premium, or proceeds of an earlier issue of a different kind of shares. It cannot use proceeds of the same kind of shares, and a CRR transfer is needed when free reserves are used.
- ABuy-back can be made out of free reserves, securities premium or proceeds of an earlier issue of shares of a different kindCorrect
- BBuy-back can be made out of proceeds of the same kind of shares being bought back
- CBuy-back can only be made out of fresh issue of debentures
- DBuy-back does not require any transfer to Capital Redemption Reserve
Explanation
A company may buy back its shares out of free reserves, securities premium account, or proceeds of an issue of any shares or specified securities, but not out of proceeds of an earlier issue of the same kind of shares. Where bought back out of free reserves, an amount equal to the nominal value of shares bought back is transferred to Capital Redemption Reserve. Hence the last option is wrong.
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