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CS Executive · Corporate Accounting and Financial Management · Accounting for Share Capital

Under the Companies Act, 2013, which of the following preference shares can a company limited by shares legally redeem?

Only fully paid preference shares can be redeemed, and the redemption must be funded from profits available for dividend or from the proceeds of a fresh issue of shares made for that purpose. Securities premium cannot fund the nominal value, and partly paid shares cannot be redeemed.

  1. APartly paid preference shares, provided calls in arrear are recovered later
  2. BFully paid preference shares, out of divisible profits or the proceeds of a fresh issue of shares made for redemptionCorrect
  3. CFully paid preference shares, out of the securities premium account towards their nominal value
  4. DPreference shares of any paid-up status, if the Board passes a resolution

Explanation

Section 55 permits redemption only of fully paid shares, and only out of profits otherwise available for dividend or the proceeds of a fresh issue made for the purpose. Securities premium may be used only for the premium payable on redemption, not for nominal value. Partly paid shares cannot be redeemed.

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