Redeemable Preference Shares A\/c Dr. To Redeemable Preference shareholders A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n2.<\/strong> If redeemable at premium<\/strong><\/p>\n\n\n\nRedeemable Preference Shares A\/c Dr. Premium on redemption of Preference shares A\/c Dr. To Preference shareholders A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nWHEN SHARES ARE REDEEMED OUT OF PROCEEDS OF FRESH ISSUE OF EQUITY \/ PREFERENCE SHARES AT PAR<\/strong><\/p>\n\n\n\n1.Shares redeemed out of fresh issue proceeds<\/strong><\/p>\n\n\n\nBank A\/c\u00a0\u00a0\u00a0\u00a0 Dr. \u00a0\u00a0\u00a0\u00a0 To Equity Share Capital A\/c \u00a0\u00a0\u00a0\u00a0 To Preference Share Capital A\/c \u00a0\u00a0\u00a0\u00a0 <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n2.When shares issued at premium<\/strong><\/p>\n\n\n\nBank A\/c Dr. To Share Capital A\/c To Securities Premium A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nFOR ADJUSTING PREMIUM ON REDEMPTION OF SHARES (if any)<\/strong><\/p>\n\n\n\n1.Adjustment of Premium<\/strong><\/p>\n\n\n\nSecurities Premium A\/c Dr. Profit and Loss A\/c Dr. To Premium on redemption of preference shares A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n2.For payment to shareholders<\/strong><\/p>\n\n\n\nPreference Shareholders A\/c Dr. To Bank A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<\/span>CAPITALISATION OF UNDISTRIBUTED PROFITS\/ RESERVES<\/span><\/h3>\n\n\n\nThe Preference shares can be redeemed out of profits\navailable for dividends by creating Capital Redemption Reserve.<\/p>\n\n\n\n
In other words, it is another aspect of redemption other\nthan issue of fresh shares which is also permitted by Companies Act. It is\nprovided that when preference shares are redeemed out of profits, a sum equal\nto face\/ nominal value of redeemable preference shares must be transferred to\nCRR.<\/p>\n\n\n\n
The most significant aspect for creating CRR out of profit\nis to maintain the capital intact i.e. in order to safeguard the interests of\nshareholders, this principle has been suggested. It is known that as soon as\nredemption takes place the company experience a liquidity crisis to maintain\nits budgeted level of operation can be overcome by raising funds from issuing\npreference shares.<\/p>\n\n\n\n
<\/span>JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS<\/span><\/h4>\n\n\n\nFOR AMOUNT PAYABLE ON REDEMPTION<\/strong><\/p>\n\n\n\n1.If redeemable at par<\/strong><\/p>\n\n\n\n Redeemable Preference Shares A\/c Dr. To Redeemable Preference Shareholders A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n2.<\/strong> If redeemable at premium<\/strong><\/p>\n\n\n\nRedeemable Preference Shares A\/c Dr. Premium on redemption of Preference shares A\/c Dr. To Preference shareholders A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nFOR TRANSFERRING TO CAPITAL REDEMPTION RESERVE<\/strong><\/p>\n\n\n\nGeneral Reserve\/ Reserve Fund A\/c Dr. Profit and Loss A\/c Dr. Dividend Equalization A\/c Dr. Workmen\u2019s Compensation Fund A\/c Dr. To CRR A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nIF CRR IS APPLIED FOR ISSUING FULLY PAID BONUS SHARES<\/strong><\/p>\n\n\n\n CRR A\/c Dr. To Bonus to shareholders A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nFOR TRANSFERRING BONUS TO SHAREHOLDERS<\/strong><\/p>\n\n\n\n Bonus to Shareholders A\/c Dr. To Equity Share Capital A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nFOR ADJUSTING PREMIUM ON REDEMPTION<\/strong><\/p>\n\n\n\nSecurities Premium A\/c Dr. Profit and Loss A\/c Dr. To premium on Redemption of preference shares A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\nFOR PAYMENT OF AMOUNT TO PREFERENCE SHAREHOLDERS<\/strong><\/p>\n\n\n\nPreference Shareholders A\/c Dr. To Bank A\/c <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<\/span>APPLICATION OF BOTH<\/span><\/h3>\n\n\n\nUnder the circumstances a company can redeem its preference\nshares:<\/p>\n\n\n\n
Fresh issue of shares<\/li> Out of profits creating by CRR<\/li><\/ul>\n\n\n\nSale of Investment\/ Fixed Assets: <\/strong>As per Section 80 A, the proceeds of selling investments or selling fixed assets must not affect the amount which is required for creating CRR.<\/p>\n\n\n\nThese can be used as a liquid source of funds for redeeming\npreference shares. But any profit or loss on sale should be transferred to\nprofit and Loss Account as they are capital profits.<\/p>\n\n\n\n
Because if any fixed asset is sold, profit on sale of such\nasset must be transferred to capital Reserve as a Capital profit.<\/p>\n\n\n\n
Proceeds of Issuing Debentures or Long Term Loans:<\/strong> The treatment will be same as \u201cSale of Investments\/ Fixed Assets.\u201d<\/p>\n\n\n\nUntraceable Preference Shares: <\/strong>Sometimes it may so happen that some preference shares are found untraceable. As such, they are not paid. The amount of those shares will remain in preference shareholders account which will appear in the liabilities side of Balance Sheet as a current liability with the nominal value plus premium, if any. There will be no separate entry for the purpose. Only the amount will be deducted from this amount paid to preference shareholders.<\/p>\n\n\n\nASCERTAINMENT OF MINIMUM FRESH ISSUE OF EQUITY SHARES<\/strong><\/p>\n\n\n\nMETHOD 1: <\/strong><\/p>\n\n\n\nAt first, calculate the amount paid to the\npreference shareholders (without premium) i.e. principal amount.<\/li> Deduct the amount taken from General Reserve\/\nProfit and Loss Account for CRR.<\/li> Balance left should be required funds to be met\nfrom the fresh issue at par.<\/li><\/ul>\n\n\n\nMETHOD 2:<\/strong><\/p>\n\n\n\nIf the minimum balance is to be maintained by the fresh\nissue of equity shares, in that case what will be the deficit\/ shortfall in the\ndebit side as the amount of fresh issue of shares. Now, if the fresh issue of\nequity shares is made at a premium, in that case the required deficit should be\ndivided by the face value plus premium per share in order to get number of\nshares.<\/p>\n\n\n\n
Thereafter, the required amount to be apportioned between the amount of securities premium in the ratio of face value of shares and premium per share.<\/p>\n","protected":false},"excerpt":{"rendered":"
REDEMPTION OF PREFERENCE SHARES Redemption of Preference Shares means returning the capital to the preference shareholders either at a fixed date or after a certain time period during the lifetime of the company provided company must complied certain conditions. ACCORDING TO THE COMPANIES ACT 2013 \u201cA company is not allowed to return to its shareholders…<\/p>\n
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