{"id":2413,"date":"2019-09-22T05:39:02","date_gmt":"2019-09-22T05:39:02","guid":{"rendered":"https:\/\/commerceiets.com\/?p=2413"},"modified":"2019-09-22T05:39:02","modified_gmt":"2019-09-22T05:39:02","slug":"redemption-of-preference-shares","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/redemption-of-preference-shares\/","title":{"rendered":"REDEMPTION OF PREFERENCE SHARES"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#REDEMPTION_OF_PREFERENCE_SHARES\" title=\"REDEMPTION OF PREFERENCE SHARES\">REDEMPTION OF PREFERENCE SHARES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#PROVISIONS_CONDITIONS_FOR_REDEMPTION_OF_PREFERENCE_SHARES\" title=\"PROVISIONS\/ CONDITIONS FOR REDEMPTION OF PREFERENCE SHARES\">PROVISIONS\/ CONDITIONS FOR REDEMPTION OF PREFERENCE SHARES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#METHODS_OF_REDEMPTION_OF_PREFERENCE_SHARES\" title=\"METHODS OF REDEMPTION OF PREFERENCE SHARES\">METHODS OF REDEMPTION OF PREFERENCE SHARES<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#PROCEEDS_OF_FRESH_ISSUE_OF_SHARES\" title=\"PROCEEDS OF FRESH ISSUE OF SHARES\">PROCEEDS OF FRESH ISSUE OF SHARES<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#JOURNAL_ENTERIES_IN_THE_BOOKS_OF_ACCOUNTS\" title=\"JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS\">JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#CAPITALISATION_OF_UNDISTRIBUTED_PROFITS_RESERVES\" title=\"CAPITALISATION OF UNDISTRIBUTED PROFITS\/ RESERVES\">CAPITALISATION OF UNDISTRIBUTED PROFITS\/ RESERVES<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#JOURNAL_ENTERIES_IN_THE_BOOKS_OF_ACCOUNTS-2\" title=\"JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS\">JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/#APPLICATION_OF_BOTH\" title=\"APPLICATION OF BOTH\">APPLICATION OF BOTH<\/a><\/li><\/ul><\/nav><\/div>\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"REDEMPTION_OF_PREFERENCE_SHARES\"><\/span><strong>REDEMPTION OF PREFERENCE SHARES<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Redemption of <a href=\"https:\/\/commerceiets.com\/different-types-of-preference-shares\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"Preference Shares (opens in a new tab)\">Preference Shares<\/a> 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.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>ACCORDING TO THE COMPANIES ACT 2013<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">\u201cA company is not allowed to return to its shareholders the share\nmoney without the permission of the court.\u201d<\/p>\n\n\n\n<p class=\"has-medium-font-size\">A refund of money requires court permission. But Section 80\nof the Companies Act allows the company, if authorized by its articles to issue\npreference shares which can be redeemed, if all the conditions of the Section are\nsatisfied.<\/p>\n\n\n\n<h3 class=\"has-text-align-center has-larger-font-size wp-block-heading\"><span class=\"ez-toc-section\" id=\"PROVISIONS_CONDITIONS_FOR_REDEMPTION_OF_PREFERENCE_SHARES\"><\/span>PROVISIONS\/ CONDITIONS FOR REDEMPTION OF PREFERENCE SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\"><strong>AUTHORIZATION BY ARTICLES OF ASSOCIATION<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The company must be authorized by its articles of association.\nAn article of Association is a document that governs the internal affairs of\nthe company.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>REDEMPTION OF FULLY PAID UP SHARES ONLY<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">No such shares shall be redeemed unless they are fully paid\nup. It means the partly paid up shares cannot be redeemed. If they are partly\npaid up, in that case a final call be made to convert the partly paid up shares\ninto fully paid up shares. Then the company can proceed for redemption of shares.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>SOURCES OF FUNDS FOR REDEMPTION<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The Preference Shares can be redeemed out of the following\narrangements:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Out of profits available for distribution as\ndividend.<\/li><li>Out of proceed of fresh issue of shares.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>CREATION OF CAPITAL REDEMPTION RESERVE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">If the shares are to be redeemed out of the profits\navailable for the distribution for dividend, a sum equal to the nominal amount\nof shares to be redeemed, must be transferred to CAPITAL REDEMPTION RESERVE. <\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>UTILIZATION OF CAPITAL REDEMPTION RESERVE<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">The CRR account can be utilized for the issue of fully paid\nup bonus shares to the shareholders.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>REDEMPTION OF SHARES AT PREMIUM<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">If the preference shares are redeemed at premium, then such\npremium must be provided either out of profits of company or out of company\u2019s\nsecurity premium account. <\/p>\n\n\n\n<h3 class=\"has-text-align-center has-larger-font-size wp-block-heading\"><span class=\"ez-toc-section\" id=\"METHODS_OF_REDEMPTION_OF_PREFERENCE_SHARES\"><\/span>METHODS OF REDEMPTION OF PREFERENCE SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">There are three widely accepted method for redemption of preference shares which are as follows:<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img loading=\"lazy\" decoding=\"async\" width=\"960\" height=\"720\" src=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide3.jpg\" alt=\"\" class=\"wp-image-2415\" srcset=\"https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide3.jpg 960w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide3-300x225.jpg 300w, https:\/\/commerceiets.com\/wp-content\/uploads\/2019\/09\/Slide3-768x576.jpg 768w\" sizes=\"auto, (max-width: 960px) 100vw, 960px\" \/><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"PROCEEDS_OF_FRESH_ISSUE_OF_SHARES\"><\/span>PROCEEDS OF FRESH ISSUE OF SHARES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The word <strong>\u2018Proceeds\u2019<\/strong> means the amount received excluding the amount of Share premium. It means it stands for the actual amount received if shares are issued at par. The company redeems the Preference shares by issuing fresh shares particularly, when<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>The balance of profit is not sufficient to declare\nthe dividends.<\/li><li>The liquidity position of the company is not\nsound<\/li><li>The company requires permanent capital, either\nfor the purpose of acquiring fixed assets, by issuing equity shares as it bears\na fixed rate of dividend.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\">The amount redeemed out of proceeds of fresh issue are:<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>IF FRESH ISSUE IS MADE AT PAR: <\/strong>Only the nominal value of shares issued will constitute the profits.<\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>IF FRESH ISSUE IS MADE AT PREMIUM:<\/strong> Only the net amount received on issue of shares (excluding the amount of premium).<\/p>\n\n\n\n<h4 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"JOURNAL_ENTERIES_IN_THE_BOOKS_OF_ACCOUNTS\"><\/span>JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-text-align-left has-medium-font-size\"><strong>FOR THE AMOUNT PAYABLE ON REDEMPTION<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>1. If Redeemable at Par<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Redeemable Preference Shares A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br \/>            To Redeemable Preference   shareholders A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>2.<\/strong> <strong>If redeemable at premium<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Redeemable Preference Shares A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.   <br \/>Premium on redemption of Preference shares A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.   &nbsp;&nbsp; <br \/>       To Preference shareholders   A\/c    <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-text-align-left has-medium-font-size\"><strong>WHEN SHARES ARE REDEEMED OUT OF PROCEEDS OF FRESH ISSUE OF EQUITY \/ PREFERENCE SHARES AT PAR<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>1.Shares redeemed out of fresh issue proceeds<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Bank A\/c\u00a0\u00a0\u00a0\u00a0 Dr.   \u00a0\u00a0\u00a0\u00a0 <br \/>     To Equity Share Capital   A\/c   \u00a0\u00a0\u00a0\u00a0 <br \/>     To Preference Share Capital   A\/c   \u00a0\u00a0\u00a0\u00a0 <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\">2.<strong>When shares issued at premium<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Bank A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.   &nbsp;&nbsp;&nbsp; <br \/>         To Share Capital A\/c   &nbsp;&nbsp;&nbsp; <br \/>         To Securities Premium A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-text-align-left has-medium-font-size\"><strong>FOR ADJUSTING PREMIUM ON REDEMPTION OF SHARES (if any)<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>1.Adjustment of Premium<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Securities Premium A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.   <br \/>Profit and Loss A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br \/>     To Premium on redemption of preference shares A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>2.For payment to shareholders<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Preference Shareholders A\/c&nbsp;&nbsp;&nbsp;   Dr.   &nbsp;&nbsp;&nbsp;&nbsp; <br \/>            To Bank A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"CAPITALISATION_OF_UNDISTRIBUTED_PROFITS_RESERVES\"><\/span>CAPITALISATION OF UNDISTRIBUTED PROFITS\/ RESERVES<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">The Preference shares can be redeemed out of profits\navailable for dividends by creating Capital Redemption Reserve.<\/p>\n\n\n\n<p class=\"has-medium-font-size\">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<p class=\"has-medium-font-size\">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<h4 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"JOURNAL_ENTERIES_IN_THE_BOOKS_OF_ACCOUNTS-2\"><\/span>JOURNAL ENTERIES IN THE BOOKS OF ACCOUNTS<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p class=\"has-medium-font-size\"><strong>FOR AMOUNT PAYABLE ON REDEMPTION<\/strong><\/p>\n\n\n\n<p><strong>1.If redeemable at par<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>   Redeemable Preference Shares A\/c&nbsp;&nbsp;   Dr.   &nbsp; <br \/>                 To Redeemable Preference   Shareholders A\/c    <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>2.<\/strong> <strong>If redeemable at premium<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Redeemable Preference Shares A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.   <br \/>Premium on redemption of Preference shares A\/c&nbsp;&nbsp;&nbsp;&nbsp; Dr.   &nbsp;&nbsp; <br \/>       To Preference shareholders   A\/c    <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>FOR TRANSFERRING TO CAPITAL REDEMPTION RESERVE<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>General Reserve\/ Reserve Fund A\/c&nbsp;&nbsp;&nbsp;   Dr.   <br \/>Profit and Loss A\/c&nbsp;&nbsp;&nbsp; Dr.   <br \/>Dividend Equalization A\/c&nbsp;&nbsp;&nbsp;   Dr.   <br \/>Workmen\u2019s Compensation Fund A\/c&nbsp;&nbsp;&nbsp;&nbsp;   Dr.   &nbsp;&nbsp;&nbsp;  <br \/>                    To CRR A\/c    <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>IF CRR IS APPLIED FOR ISSUING FULLY PAID BONUS SHARES<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>   CRR A\/c&nbsp;&nbsp;&nbsp; Dr.   &nbsp;&nbsp; <br \/>               To Bonus to shareholders A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>FOR TRANSFERRING BONUS TO SHAREHOLDERS<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>   Bonus to Shareholders A\/c&nbsp;&nbsp;&nbsp;&nbsp;   Dr.   &nbsp;&nbsp;&nbsp;&nbsp;<br \/>                 To Equity Share Capital   A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>FOR ADJUSTING PREMIUM ON REDEMPTION<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Securities Premium A\/c&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Dr.   <br \/>Profit and Loss A\/c Dr.   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br \/>                   To premium on Redemption of preference shares A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"has-medium-font-size\"><strong>FOR PAYMENT OF AMOUNT TO PREFERENCE SHAREHOLDERS<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td>Preference Shareholders A\/c &nbsp;&nbsp;&nbsp;Dr.   &nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <br \/>             To Bank A\/c   <\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\"><span class=\"ez-toc-section\" id=\"APPLICATION_OF_BOTH\"><\/span>APPLICATION OF BOTH<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p class=\"has-medium-font-size\">Under the circumstances a company can redeem its preference\nshares:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Fresh issue of shares<\/li><li>Out of profits creating by CRR<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>Sale 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\n<p class=\"has-medium-font-size\">These 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<p class=\"has-medium-font-size\">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<p class=\"has-medium-font-size\"><strong>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\n<p class=\"has-medium-font-size\"><strong>Untraceable 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\n<p class=\"has-pale-cyan-blue-background-color has-background has-medium-font-size\"><strong>ASCERTAINMENT OF MINIMUM FRESH ISSUE OF EQUITY SHARES<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\"><strong>METHOD 1: <\/strong><\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>At first, calculate the amount paid to the\npreference shareholders (without premium) i.e. principal amount.<\/li><li>Deduct the amount taken from General Reserve\/\nProfit and Loss Account for CRR.<\/li><li>Balance left should be required funds to be met\nfrom the fresh issue at par.<\/li><\/ul>\n\n\n\n<p class=\"has-medium-font-size\"><strong>METHOD 2:<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size\">If 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<p class=\"has-medium-font-size\">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":"<p>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&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/redemption-of-preference-shares\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;REDEMPTION OF PREFERENCE SHARES&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":2420,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[102],"tags":[152,153],"class_list":["post-2413","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-corporate-accounting","tag-methods-of-redemption-of-preference-shares","tag-provisions-conditions-for-redemption-of-preference-shares"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2413","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=2413"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/2413\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/2420"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=2413"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=2413"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=2413"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}