undefined | unit 2 redemption of preference shares

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Unit IIRedemption of Preference Shares Q1) Define Redeemable Preferred Share.A1) A Redeemable Preferred Stock is one in which the amount can be repaid to the holder of the share. That is, the capital raised by the issuance of Redeemable Preferred Shares allows the company to repay such shares. The repayment of capital is called Redemption. Redemption of Redeemable Preferred Shares does not reduce the authorized capital of the company. From the creditor's point of view, the Redeemed share capital is simply replaced by the nominal value of the new share issued for the purpose of redemption or the capital redemption reserve account, so the capital remains intact. Issuance and redemption of preferred shares

We may not issue redeemable preferred shares or redeemable preferred shares if the redemption period exceeds 20 years.

Article 55 (1) states that a company limited by shares shall not issue preferred shares that are irredeemable.

Section 55 (2) further states that a company limited by shares, if approved by the article, may issue preferred shares which, in accordance with the prescribed conditions, may be redeemed within a time span not exceeding 20 years from the date of issue.

Exceptions

Issuance and redemption of preferred shares by the company in infrastructure projects

Companies engaged in setting up and dealing with infrastructure projects can issue preferred shares for a period of more than 20 years, but not more than 30 years,

(However, the choice of preferred shareholder allows the redemption of at least 10% of the annual preferred stock on a proportional basis from twenty-first year onwards)"Infrastructure project" means the infrastructure project specified in Schedule VI. Q2) What benefits do investors get in Shares?A2) Significance for investorsPreferred shares are the best option for risk-averse equity investors. Preferred shares are usually less volatile than common shares and provide investors with a steady stream of dividends. Also, preferred shares are usually callable, and the issuer of shares can redeem them at any time, offering investors more options than common shares.Preferred shareholders experience both pros and cons. On the contrary, they collect dividend payments before the shareholders of common stock receive such income. But as a disadvantage, they do not enjoy the voting rights that common shareholders usually do. Q3) Explain Issuance and redemption of preferred shares.A3) Issuance and redemption of preferred shares

no stock restrictions shall be issued after the commencement of this law

Any preferred stock that is irredeemable.2. the company limited by shares may issue priority if approved by its articleShares that are obligated to be redeemed within a period of no more than two decades from date issued in accordance with the prescribed conditions:Provided that the company may issue preferred shares for a period exceeding twenty Year for infrastructure projects, subject to redemption of such a percentage of shares .The option of preferential shareholders can be specified on a yearly basis:Further to be provided—(a) Such shares shall not be redeemed except of the company's profitsOtherwise, it will be available for dividends or out of fresh issue earningsOf shares made for the reason of such redemption;;(B) Such shares shall not be redeemed unless paid in full;(C) if such shares are proposed to be redeemed from the profits of such shares;The Company shall transfer a nominally equal sum out of such profits thereThe amount of shares to be redeemed, to the reserve, called capital redemption in accordance with the law on the reduction of share capital, etc.Except as provided in this paragraph, the Company shall apply as capital redemption the reserve account was the company's paid equity capital.(D) (I) in the case of a company of such class, is prescribed, and in the case of a class of company of that class of company;Financial statements comply with the accounting standards established for such classesThe company under Article 133 shall, if there is a premium to be paid at the time of redemption is before the shares are redeemed, the company will be offered for out of profit: You will also be offered, if that premium is paid to any preferred reimbursement. Shares issued before the commencement of this law shall be issued by the company concerned. We will not be liable for any loss, damage, loss, loss, or damage to any of our products or services. Premium accounts before such shares are redeemed.(ii) If there is a premium to be paid, if not applicable to section i above, it includes the premium to be paid. Reimbursement shall be provided in our interest or in our interest. Before such shares are redeemed, the company's securities premium account.(3) The company is not in a position to redeem or pay preferred shares;When there is a dividend for the shares (hereinafter referred to as the shares) in accordance with the issuance conditions. It can, with the consent of the holder ofWith the approval of the court on three-quarters of the value of such preferred shares and the petition made by it in lieu of this will issue a further Redeemable Preferred Stock equal to for outstanding preferred shares, the amount due including dividends, and for the issuance of such further Redeemable Preferred Shares, unrealized preferred shares. The shares shall be deemed to possess been redeemed:

In this subsection under the approval of the arbitral tribunal、

Redemption of Preferred Shares, etc. held by persons who do not agree to such redemption shall be made promptly.

To further issue of Redeemable Preferred Shares.

Description.- For the elimination of doubts, it is declared that here further problemsRedemption of Redeemable Preferred Shares or preferred shares or preferred shares, etc. under this paragraph shall be Share capital not considered to be an increase or in some cases a decrease Company.(4) Capital redemption reserve account can be, regardless of this oneThe section will pay the unissued shares of the company, the company appliesIt is issued to members of the company as fully paid bonus shares.Description.- The term “infrastructure project “for the purposes of Section 2Schedule VI Q4) What are the three ways of redemption of preferred shares?A4) The following points highlight the top three ways of redemption of preferred shares. The methods are: 1. Proceeds from new issuance of shares 2. Capitalization of undistributed profits/reserves 3. Both applications. Method 1Proceeds from new issuance of shares: The meaning of the fresh issue earnings requires further clarification, because it creates confusion among the authors, as nowhere has previously defined it. According to the meaning of the dictionary, the term "earnings" means receipts under all conditions of issuance, that is. At par ,at a discount, and at a premium. In the case of shares issued at face value or at a discount, there is practically no problem, but in the case of shares issued at a premium, the question arises whether the issuance premium of shares should be considered" revenue". Before making any conclusions about it, consider the Sec that deals with shares issued at a premium .Let's look at 78(2). According to Article 78(2)of the Companies Act, funds received in premium accounts shall be transferred to "securities premium accounts." The securities premium account shall be applied by the company for the following purposes: a) To pay any UN-issued shares issued to members of the company as bonus shares paid in full.b) To turn off our preliminary costs in writing.;c) Write off the costs of any fees or discounts paid on the issuance of company shares or bonds; or (C) write off any fees or discounts allowed on the issuance of company shares or bonds;;d) Provide a premium to be paid for redemption of Redeemable Preferred Shares or corporate bonds of the company; Thus, in Section (d), the premium paid by redemption of the preferred stock may be adjusted to the securities premium account, but the nominal value of the preferred stock may not be redeemed from the securities premium account. Therefore, the premium on the issuance of shares cannot be treated as "earnings" and therefore cannot be used for redemption of the nominal value of preferred shares. Shares cannot be treated as "earnings"; therefore, the same cannot be utilized for the nominal value of the redeemed Preferred Stock. Students are asked to remember the following for the purpose of redemption of preferred shares, which are redeemed from the "earnings" of fresh issues:In fact, the company issues fresh shares for the purpose of redemption of preferred shares.

(i) If the fresh issue is made at par

(ii) If the fresh issue is made at a discount

(iii) If the fresh issue is made at a premium

: only the nominal value of shares issued will constitute the proceeds.

: only the net amount received on issue of shares (not the nominal value).

: only the nominal value of shares issued (i.e., excluding the amount of securities premium).

(i) The balance of profits (after creating capital redemption reserves) is not sufficient to declare dividends.(ii) The liquidity position of the company is not sound.(iii) The company requires permanent capital by issuing shares, not preferred shares with a fixed dividend rate, for fixed asset acquisition or other purposes.The logic behind fresh stock issues: The following reasons have been proposed: (a) The liquidity position of the company is not sound, i.e. The company may face liquidity issues while paying preferred shareholders in cash.(b) Due to insufficient profit, it is difficult to create a capital redemption reserve account.I instead issue fresh Redeemable Preferred Shares that carry a fixed rate of dividends where the company finds it more preferable to issue fresh shares. When we issue fresh shares for the purpose of redemption of Redeemable Preferred Shares, we may enjoy the following benefits: (I) The interests of shareholders and control over the company remain unaffected;(II) The acquisition of shares by shareholders is outside of the capital gains tax;(III) The problem of repayment does not arise.Method 2Capitalization of undistributed profit/reserve: The legal procedure that preferred shares can be redeemed from profits available for dividends by creating capital redemption reserves (Sec.In accordance with 80)is already emphasized at the beginning of this study. That is, it is another aspect of redemption other than the issuance of fresh shares, which is also allowed in the Companies Act. If the preferred stock is redeemed from profit, the sum equal to the face value/nominal value of the Redeemable Preferred Stock is returned to the capital redemption reserve (Sec.80 (1) (d). Such a capital redemption reserve account can only be used for the purpose of issuing fully paid bonus shares. In short, some of the distributable profits cannot be distributed by dividends. Reasons for creating capital redemption reserves: There are two reasons for creating capital redemption reserves substantially: (I) From a shareholder's perspective, and(II) From the perspective of creditors. Profit from capital redemption reserve to create one of the most important aspects of the capital, it will maintain, i.e., shareholders, to protect the interests of the principle of redemption is to be done and soon, The company is to issue shares of preferred stock that by raising funds to overcome budget level to maintain the operation of the liquidity crisis may be to us known. Naturally, the public will not be interested in subscribing to shares. This is because when a company redeems preferred shares, it becomes clear that the period of liquidity crisis is over. However, as soon as preferred shares are redeemed, there will be a shortage of capital. Therefore, Section 80 of the Companies Act, 1956, suggests the maintenance of capital taken during the liquidity crisis period by issuing Redeemable Preferred Shares. Sec.80 objectives / objectives are quite satisfied by the following two methods: (i) Fresh out of the problem earnings;(ii) Out of profits by creating capital redemption reserves that may only be applied to issue bonus shares paid in full.(iii) From the standpoint of creditors: Logic for creating capital redemption reserves is to protect the interests of creditors. This is not surprising, because if the director decides that way, he can distribute the full amount of profit by dividends; in other words, adversely affect the interests of creditors.Method 3Both applications:(That is, partly from fresh issuance of shares, partly from profit)Under such circumstances, the company may redeem its preferred shares out of profit by (I) using a new issuance of shares and (II) creating capital redemption reserves. Q5) Ltd spotlight has issued 60,000 share capital, 8% redeemable cumulative preferred share of Rs. Share of each of 20Rs and equity of 4, 00,000. Each 10 preferred shares will be redeemed at a 5% premium of 1january2006: We had a balance sheet that day.

Liabilities and Capital	Rs	Assets	Rs
Issued Share Capital 60,000, 8% Redeemable Cumulative Preference Shares of Rs. 20 each, fully paid 4,00,000 Equity Shares of Rs 10 each, fully paid Profit and Loss Account Sundry Creditors	12,00,000 40,00,000 7,00,000 11,00,000	Plant and Machinery Furniture and Fixtures Stock Debtors Investments Balance at Bank	25,00,000 9,00,000 15,00,000 14,00,000 3,50,000 3,50,000
			70,00,000
	70,0,000

Top 3 ways of redemption of preferred shares in order to facilitate redemption of preferred shares, it was decided: (A) Sell the investment for Rs. 3, 00,000.(B) to finance part of the redemption from company funds provided that the balance of the profit and loss account of Rs remains outstanding. 2,00,000.(C) issue sufficient shares of Rs; 10 each at a premium of Rs. 2 per share in order to take up the necessary funds balance.Preferred shares were redeemed on the due date and the shares were fully subscribed. You need to prepare: (i) Journal entries to record the above transactions;(ii) Memorandum balance sheet upon completion of redemption.

Capital Redemption Reserve A/c

Profit and Loss A/c

(7,00,000 – 50,000 – 4,50,000)

Secured Loans

Unsecured Loans

Current Liabilities and Provisions

Sundry Creditors

4,50,000

2,00,000

Nil

11,00,000

Current Assets, Loans & Advances

Stock

Debtors

Cash at Bank3

Mis. Exp.

15,00,000

14,00,000

2,90,000

Nil

65,90,000

Workings:

Calculation of Fresh issue of Equity Shares:

Total funds required for redemption (Rs.12,00,000 + Rs. 60,000) 12,60,0002. Less: Available balance from P & L A/c by creatingCapital Redemption Reserve: P & L (balance) A/c 7,00,000Less: Loss on Sale of Investment 50,000 6,50,000 Less: Minimum balance to be retained in P & L A/c 2,00,000 4,50,000Therefore, total amount to be required 8,10,000Less: Premium payable on redemption 60,000 7,50,000 No. of Shares to be issued = Rs. 7,50,000 / Rs. 10 = 75,000 SharesDr. Bank Account. Cr.

To Balance b/d

“ Investments A/c

“ Equity Share Capital A/c

“ Securities Premium A/c

3,50,000

3,00,000

7,50,000

1,50,000

By Preference Shareholders A/c

“ Balance c/d

12,60,000

2,90,000

15,50,000

A5)In the books of Spotlight Ltd.Journal

Date	Particulars	L.F	Debit	Credit
	Bank A/c Dr. Profit and Loss (Loss on Sale of Investment) A/c Dr. To Investment A/c (Investment were sold, the loss on sale being transferred to Profit & Loss Account)		Rs 3,00,000 50,000	Rs 3,50,000
	Bank A/c1 Dr. To Equity Share Capital A/c “ Securities Premium A/c (Issued of 75,000 Equity Shares of Rs. 10 each at a premium of Rs. 2 per share for the purpose of redemption of Cu. Pref. Shares as per Board’s Resolution dated…..)		9,00,000	7,50,000 1,50,000
	Profit and Loss A/c2 Dr. To Capital Redemption Reserve A/c (Transfer of the requisite amount from Profit and Loss Account for capital sum on redemption of Cum. Pref. Share)		4,50,000	4,50,00
	8% Red. Cumulative Pref. Share A/c Dr. Premium on Redemption of Cum. Red Pref. Shares A/c Dr. To Red. Cum. Pref. Shareholders A/c (Amount payable to the Res. Cum. Preference Shareholders)		12,00,000 60,000	12,60,000

Securities Premium A/c Dr.

To Premium on Redemption of Red.

Cum. Pref. Share A/c

(Transfer of the requisite amount from Securities Premium Account to provide premium @5%)

60,000

Preference Shareholders A/c Dr.

To Bank A/c

(Amount paid to the preference shareholders)

12,60,000

Memorandum Balance SheetAs at 1st Jan.1 2006(after Redemption)

Liabilities

Assets

Issued Shared Capital

4,75,000 Equ. Shares of Rs. 10 each, fully paid

Reserve and Surplus

Securities Premium A/c

(Rs. 1,50,000 – Rs. 60,000)

47,50,000

90,000

Fixed Assets

Plant and Machinery

Furniture and Fixture

Investment

25,00,000

9,00,000

Nil

Capital Redemption Reserve A/c

Profit and Loss A/c

(7,00,000 – 50,000 – 4,50,000)

Secured Loans

Unsecured Loans

Current Liabilities and Provisions

Sundry Creditors

4,50,000

2,00,000

Nil

11,00,000

Current Assets, Loans & Advances

Stock

Debtors

Cash at Bank3

Misc. Exp

15,00,000

14,00,000

2,90,000

Nil

65,90,000

Workings:

Calculation of fresh issue of Equity Shares:

RsTotal Funds required for redemption (Rs. 12,00,000 + Rs. 60,000) 12,60,0002. Less: Available balance from P & L A/c by crestingCapital Redemption Resrve:P & L (balance) A/c 7,00,000Less: Loss on Sale of Investment 50,000 6,50,000Less: Minimum balance to be retained in P & L A/c 2,00,000 4,50,000Total amount to be required 8,10,000Total fund to be raised by the issue of equity shares 60,000 7,50,000No. of Share to be issued = Rs. 7,50,000 / Rs. 10 = 75,000 Shares Dr. Bank Account. Cr.

To Balance b/d

“ Investments A/c

“ Equity Share Capital A/c

“ Securities Premium A/c

3,50,000

3,00,000

7,50,000

1,50,000

By Preference Shareholders A/c

“ Balance c/d

12,60,000

2,90,000

15,50,000

Q6) Standing as under the balance sheet 31.12.2008 of the Corporation M: Balance Sheetas at 31st December, 2008

Liabilities

Assets

9% Redeemable Preference

Shares of Rs. 100 each, fully paid-up

Equ. Shares of Rs. 5 each, fully paid

General Reserve

Profit and Loss Account

Sundry Creditors

6,50,000

2,25,000

1,00,000

2,60,000

57,500

Sundry Assets

Investments

Cash at Bank

9,50,000

2,75,000

67,500

12,92,500

Preferred shares will be redeemed at 1.1.2009 at a premium of 7‰%.To facilitate reimbursement, the company decided: (i) Sell the investment for Rs. 2, 60,000.(ii) To finance part of the redemption from our fund.(iii) To issue sufficient equity at the premium of Re. 1 per share to in order to take up the balance of funds needed,(iv) The minimum bank balance held in Rs. 10,500. The investment was sold, the shares were fully subscribed, and the shares were officially redeemed. View the entries and prepare the balance sheet. Note: A minimum reduction should be made for the general reserve. A6)Workshop: In order to issue a sufficient number of shares, you need to prepare the following bank accounts: Bank Account

TO Balance b/d

“ Investments A/c

“ * Equity Share Capital 3,18125

Securities Premium 63,625

67,500

2,60,000

3,81,750

By Preference Shareholders A/c

“ Balance c/d (to be retained)

6,98,750

10,500

7,09,250

*Total funds required by fredh issue of equity shares = Rs. 3,81,750No. of Shares will be Rs. 3,81,750 / 6(5+1) = 63,625(i.e, Equity Share Capital = 63,625 x Rs. 5 = Rs. 3,18,125Securities Premium = 63,625 x Re. 1 = Rs. 63,625) RsNow, funds required for the purpose of redemption of Preference Shares with premium 6,98,750(Rs. 6,50,000 + Rs. 48,750)Less: Amount to be raised by the issue of equity shares 3,18,125 3,80,625Less: Premium payable on redemption 48,750 3,31.875Less: Amount vaialable from P & L A/c(2,60,000 – 15,000 for loss on sale of Investment) 2,45,000Amount taken from General 86,875In the book of M. Ltd.Journal

Date	Particulars	L.F	Debit	Credit
2009 Jan. 1	Bank A/c Dr. To Equity Share Capital A/c “ Securities Premium A/c (issue of 63,625 Equity Shares of Rs. 5 each at a premium of Re. 1 for the purpose of redemption of Pref. Shares as per Board’s Resolution dated….)		Rs 3,81,750	Rs 3,18,125 63,625
	Profit and Loss A/c Dr. General Reserve A/c Dr. To Capital Redemption Reserve A/c (Transfer of requisite amount from P & L A/c and General Reserve for capital sum on redemption of pref. shares)		2,45,000 86,875	3,31,875
	Bank A/c Dr. Profit and Loss (loss on sale) A/c Dr. To Investment A/c (Investment were sold, loss on sale being adjusted against P & L A/c		2,60,000 15,000	2,75,000

2009

9% Redeemable Pref. Share Capital A/c Dr.

Premium on Redemption of Pref. Share A/c Dr.

To Preference Shareholders A/c

(Amount payable to preference shareholders)

6,50,000

48,750

6,98,750

Securities Premium A/c Dr.

To Premium on Redemption of Pref. Shares A/c

(Transfer of requisite amount from Share Premium Account to provide premium @ 71/2%)

48,750

Preference Shareholders A/c Dr.

To Bank A/c

(Amount paid to the preference shareholders)

6,98,750

Balance Sheet(after redemption)as at jan. 1, 2009

Liabilities

Assets

Share Capital

Issued and Paid up:

1,08,625 Equity Share of Rs. 5 each, fully paid

Reserve and Surplus:

General Reserve A/c

(1,00,000 – 86,875)

Capital Redemption Reserve A/c

Securities Premium (63,625 – 48,750)

Current Liabilities and Provisions A/c:

Sundry Creditors

5,43,125

13,125

3,31,875

14,875

57,500

Sundry Assets

Cash at Bank

9,50,000

10,500

9,60,500

In the book of XYZ. Ltd.Journal

Date	Particulars	L.F	Debit	Credit
?	Bank A/c (50,000 x 20) Dr. To Equity Share Application A/c (Application money received for 50,000 shares @ Rs. 20)		Rs 10,00,000	Rs 10,00,000
	Equity Share Application A/c Dr. (Application money transferred to share capital as per Board’s Resolution dated…)		10,00,000	10,00,000
	Equity Share Allotment A/c Dr. To Equity Share Capital A/c “ Securities Premium A/c (Share Allotment money transferred to Share Capital as per Board’s Resolution dated…)		17,50,000	12.50,000 5,00,000
	Bank A/c Dr. To Equity Share Allotment A/c (Amount received on allotment)		17,50,000	17,50,000
?	8% Pref. Share Final Call A/c (50,000 x Rs.30) Dr. To 8% Pref. Share Capital A/c (Pref. Share final call money transferred to Pref. Share Capital as per Board’s Resolution dated….)		15,00,000	15,00,000
	Bank A/c Dr. To 8% Pref. Share Final Call A/c (Share final call money received)		15,00,000	15,00,000
	8% Pref. Share Capital A/c Dr. Premium on Redemption of Preference Shares A/c Dr. To Pref. Shareholders A/c (50,000, 8% Pref. Shareholders due for redemption at a premium of Rs. 5%)		50,00,000 2,50,000	52.50,000
	Securities Premium A/c Dr. To Premium Redemption of Preference Share A/c (Premium on Redemption, adjusted against Securities Premium A/c)		2,50,000	2,50,000
	General Reserve A/c Dr. To Capital Redemption of Pref. Share A/c (Capital Redemption Reserve is created out of General Reserve)		27,50,000	27,50,000
	Pref. Shareholders A/c Dr. To Bank A/c (Amount paid to Preference shareholders)		52,50,000	52,50,000

Balance Sheetas at 31st March 1999

Liabilities

Asset

Authorised Capital:

Issued and Piad up

1,00,000 Equity Shares of Rs. 10 each fully paid

50,000 Equity Shares of Rs.100 each

Rs. 45 called-up and paid-up

Reserve & Surplus

Securities Premium A/c

(Rs. 5,00,000 + Rs. 5,00,000 – Rs. 2,50,00)

Capital Redemption Reserve A/c

………………………

10,00,000

22,50,000

7,50,000

47,50,000

Q7) Ltd. Vanity's issued 1, 000, 12% Redeemable Preferred Shares"100 each, could be repaid at a premium of 10%. These shares shall be redeemed from reserve funds that exceed the amount required for redemption. It is assumed that the premium on redemption of shares must be written off against the company's securities compensation reserves, indicating the necessary entries in the company's books. A7) General reservation account doctorOn capital redemption reserve A/c(Transfer of reserve funds to a capital redemption reserve account in connection with redemption of redemption preferred shares）)________m1, 00,000 1, 00,00012%redeemable preferred equity capital A / C DrPremium on redemption of Preferred Stock A/C DrTo 12% favourite shareholder A/c(Amount paid to 12% preferred shareholders at a premium of 12% upon redemption of 10% preferred shares %)1, 00,00010,0001, 10,000Securities premium reserveRedemption of preference share a / C Premium(Application of securities premium account to write off the premium in redemption of preferred shares)______10,000 10,00012% preferred shareholder A / c DrTo the bank (Amount by 12% of preferred shareholders at redemption)1, 10,000 1, 10,000Note: capital redemption reserve account replaces 12% Redeemable Preferred Stock capital account Structure of the company's capital does not change. Q8) (When Redeemable Preferred Shares are redeemed from the proceeds of fresh issuance made for that purpose). Co., Ltd. three and fast consists of a portion of its share capital,12% Redeemable Preferred Shares of100 each, repayable at a 5% premium. The shares are now ready for redemption. It is determined that the full amount will be redeemed from the fresh issuance of 20,000 shares1011 each to each. The full amount will be received in cash and 12% preferred shares will be redeemed.View the required journal entries for your company's books. A8)Journal entry Bank A/c Dr Application for equity and allocation A/C(Including application money 20,000 shares@11 per share 1 premium per share)____ 2,20,000 2, 20,000Share Application and allotment A/C Dr Share capital A / c 2, 00,000 To securities premium reserve(Allocation of 20,000 shares10 per share in accordance with the resolution of the board of directors issued at a premium of 1 per share per each share....)________2, 20,000 2, 00,00020,00012%redeemable preferred equity capital A / C DrRedemption of preference share a / C Dr. Premium To 12% favourite shareholder A/c(Amount due to redemption of 12% preferred shares, 8% Preferred Shares, 5% premium %)2, 00,000’10,0002, 10,000 Securities premium reserve To a premium on redemption of Preferred Shares A/c(Application of securities premium account to write off the premium in redemption of preferred shares)____ 10,000 10,00012% preferred shareholder A / C DrTo the bank(Amount by 12% of preferred shareholders at redemption)2, 10,000 2, 10,000 Note: share capital account replaces 12% redeemable preferred share capital account、 I. Capital and liabilities Rs.1. Shareholder funds (A) 15, 48,000 per in capital(b) Reserves and retained earnings 2 1, 65,0002. Current liabilities Purchase price 27,000Total 7, 40,000II.Assets 1. Non-current assets(A) Fixed assets(b) Non-current investments 2. Current assetsCash and cash equivalentTotal6, 00,00050,0006, 50,00090,0007, 40,000 Notes1. Share capital Authorized share capital............. Issue, subscription call-up and paid share capital2500 preferred shares ' 100 each paid up in full 2, 50,000 Less: calls in arrears 2000 2, 48,00030,000 shares of ' 10 each paid up in full 3, 00,0002. Reserve and surplus Securities premium 15,000 Surplus accounts 1, 50,000 1, 65,000 Q9) On 30 June, 2014, the board of directors redeemed Preferred Shares at a 10% premium and "decided to sell the investment at a market price of 40,000." They also decided to issue a sufficient number of shares at a premium of 10 per share per 1 share, which they needed after taking advantage of the surplus account to leave a balance of 50,000. The redemption premium must be offset against the securities premium reserve. The repayments against the reimbursement were made in full except for shareholders holding 50 shares only because he left India. It is necessary to present the journal table and balance sheet of the company after Redemption. The assumptions made should be stated in working. A9)Journal entry for Oscar Books, Inc Details are available at Dr. ('Rs.）Cr. ('Rs.) Bank A/c Dr 40,000Surplus a / c Dr 10,000To investment(That is, the sale of investments at a loss of 10,000)____________________50,000 BankA/c Dr 1, 65,000To share capital A/ 1, 50,000To securities premium reserve(To be the issuance of the required number of shares of premium 10%) 15,000Preference share capital A / C Dr 2, 40,000Reimbursement a / c Dr. Premium 24,000Preferred shareholder A / c(To be a transfer of the amount by the preferred shareholder of redemption) 2, 64,000 Securities premium reserve 24,000On reimbursement a/c premium (To be the transfer of securities premium account to write off the premium to the redemption account)_______________ 24,000 Surplus a / c Dr 90,000On capital redemption reserve A/c(Is the transfer of profit used for redemption of preferred shares transferred to the capital redemption reserve account)____90,000 Preferred shareholder A / c Dr 2, 58,500To the bank (Payment to preferred shareholders excluding 50 shares) 2,58,500 Oscar India Inc.Balance sheet (after Redemption)As of 1st July2014 I. Capital and liabilities Rs.1. Shareholder benefits 1 4, 58,000(a)Equity Capital 2 1, 46,000(b) Reserves and surplus 2. Current liabilities Purchase price 27,500 yenOther current liability 3 5,000Total 6, 36,500II. Assets 1. Non-current assets (A) Fixed assets 6, 00,0002. Current assets Cash and cash equivalents 36,500Total 6, 36,500 Notes1. Share capital Authorized share capital Issue, subscription call-up and paid share capital Issued, subscribed, and paid-in share capital 10,000 Less: calls in arrears 2000 8,00045,000 shares'10 each paid up in full 4, 50,0004, 58,000 2. Reserve and surplus Capital redemption reserve 90,000 6,000 securities premium reserves Surplus accounts 50,000 1, 46,000 3. Other current responsibilitiesAmount due to preferred shareholders: 5,000 Bank account A/c Dr Preferred shareholder to balance b/D90,000 by a / C 2,58,500By investment 40,000 Balance B/d36,500To share capital a/c1, 50,000 To 15,000 securities compensation reserves _______2, 95,000 2, 95,000 3. The premium on redemption of preferred shares is met from the securities premium account. Q10) Redeemable Preferred Shares are redeemed from a portion of the company's profits and from a portion of the proceeds of fresh issuance of shares made for that purpose.Producer Co., Ltd.Balance sheet as of 31st March, 2014:Producers Ltd
BALANCE SHEET
AS AT 31st March, 2014

I. EQUITY AND LIABILITIES	Rs.	Rs.
1. Shareholders’ funds
(a) Share Capital 1		3,50,000
(b) Reserve & Surplus 2		64,000
2. Current Liabilities
Trade Payable	22,500
Short term provisions 3	19,500	42,000
TOTAL		4,56,000
II. ASSETS
1. Non-current assets
(a) Fixed Assets
I. Tangible fixed assets 4		2,10,000
(b) Non-Current Investments		60,000
2. Current Assets
Inventories	1,30,500
Trade receivable	49,550
Cash and cash equivalents	4,950
Other current assets 5	1,000	1,86,000
TOTAL		4,56,000

Notes1. Share capitalAuthorized share capital40,000 shares'10 each paid up in full 4, 00,0001000, 8% Preferred Shares " 100 each 1, 00,0005, 00,000Issue, subscription call-up and paid share capital1000 8% Preferred Shares'100 each paid in full-up 1, 00,00025,000 shares'10 each paid up in full 2, 50,0003, 50,0002. Reserve and surplus9,000 securities premium reservesSurplus accounts 55,000 64,0003. Short-term provisions 19,500 levy provision4. Property, plant and equipmentPlant and machine 1, 90,000Furniture and fixtures 20,000 2, 10,0005. Other current assetsPrepaid cost 1000To redeem preferred shares, the company issued 5,000 shares of 10 shares each at a 10% premium and sold 70,800 shares of the investment. Preferred shares were redeemed at a 10% premium.Display the necessary journal entries in the company's books and prepare the company's balance sheet immediately after redemption of preferred shares.A10)Journal Entries

Particulars	Dr.(Rs)	Cr.(Rs)
Bank Dr.	55,000
To Equity Share Application and Allotment Account (Application money received on 5,000 equity shares of 10 at a premium of 10%).		55,000
Equity Share Application and Allotment A/c Dr.	55,000
To Equity Share Capital A/c 50,000 To Securities Premium Reserves (Allotment of 5000 equity shares of 10 each issued at a premium of 10% as per Board’s resolution dated….)_______		50,000 5,000
Surplus A/c Dr.	50,000
To Capital Redemption Reserve A/c (Transfer of the balance amount of the nominal value preference shares to be redeemed not covered by fresh issue, i.e., 1,00,000 – 50,000 on redemption to Capital Redemption Reserve A/c)___		50,000
Bank Dr.	70,800
To Investments A/c To Surplus A/c (Sale on Investments at a profit and transfer of profit on sale to Profit and Loss A/c)		60,000 10,800
8% Redeemable Preference Share Capital A/c Dr. Premium on Redemption of Preference Shares A/c Dr.	1,00,000 10,000
To 8% Preference Shareholders A/c (Amount due to 8% preference shareholders on redemption)–		1,10,000
Securities Premium Reserves Dr. To Premium on Redemption of Preference Shares A/c (Application of securities premium to write off premium on redemption of preference shares)	10,000	10,000
8% Preference Shareholders A/c Dr. To Bank (Amount due to 8% Preference Shareholders on redemption paid)	1,10,000	1,10,000

Producers Ltd
BALANCE SHEET (After redemption of preference shares)
AS AT 31st March, 2014

I. EQUITY AND LIABILITIES	Rs.	Rs.
1. Shareholders’ funds
(a) Share Capital 1		3,00,000
(b) Reserve & Surplus 2		69,800
2. Current Liabilities
Trade Payable	22,500
Short term provisions 3	19,500	42,000
TOTAL		4,11,800
II. ASSETS
1. Non-current assets
(a) Fixed Assets
I. Tangible fixed assets 4		2,10,000
2. Current Assets
Inventories	1,30,500
Trade receivable	49,550
Cash and cash equivalents	20 750
Other current assets 5	1,000	2,01,800
TOTAL		4,11,800

Notes1. Share capitalAuthorized share capital40,000 shares'10 each paid up in full 4, 00,0001000, 8% Preferred Shares " 100 each 1, 00,0005, 00,000Issue, subscription call-up and paid share capital30,000 shares of ' 10 each paid up in full 3, 00,0002. Reserve and surplus4,000 securities premium reservesSurplus accounts 15,800Capital redemption reserve 50,000 69,8003. Short-term provisions 19,500 levy provision4. Property, plant and equipmentPlant and machine 1, 90,000Furniture and fixtures 20,0002, 10,0005. Other current assetsPrepaid cost 1,000

Particulars	Rs.	Particulars	Rs.
To Balance b/d	4,950	By 8% Preference Shareholders A/c	1,10,000
To Equity Share Application and Allotment A/c	55,000	By Balance b/d	20,750
To Investment A/c	60,000
To Surplus A/c	10,800		_______
	1,30,750		1,30,750

Working Notes: Bank A/c
(ii) Securities Premium A/cDr Cr

Particulars	Rs.	Particulars	Rs.
To Premium on Redemption of Preference Shares Account	10,000	By Preference Shareholders A/c	9,000
To Balance c/d	4000	By Equity Share Application and Allotment A/c	5,000
	14,000		14,000

(iv) Profit and Loss A/c

Dr Cr


Particulars	Rs.	Particulars	Rs.
To Capital Redemption Reserve A/c	50,000	By Balance b/d	55,000
To Balance c/d	15,800	By Bank (Profit on sale of investments)	10,800
	65,800		65,800

Note: the share capital issued in the"50,000 and capital redemption reserve account" 50,000 will be jointly replaced8%preferred share capital redeemable'1, 00,000. Thus, the capital structure of the company remains, it won't change.

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