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CMA Intermediate · Corporate Accounting and Auditing · Issue, Forfeiture, Rights, Bonus, Sweat Equity, ESOP and Buy-back of Shares

Zenith Ltd has paid-up equity capital of Rs 40,00,000 and free reserves of Rs 60,00,000 (paid-up capital is all equity). The Board wishes to buy back equity shares by a Board resolution alone, without a special resolution. What is the maximum amount of buy-back possible on this basis?

The maximum is Rs 10,00,000. A Board resolution alone is enough only where the buy-back is ten per cent or less of paid-up equity capital plus free reserves, which here total Rs 1,00,00,000. The 25% figure of Rs 25,00,000 would require a special resolution.

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

Explanation

A Board resolution suffices only if the buy-back is 10% or less of total paid-up equity capital and free reserves. Total = 40,00,000 + 60,00,000 = Rs 1,00,00,000, and 10% = Rs 10,00,000. Rs 25,00,000 is the 25% limit that needs a special resolution.

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