Company Accounts

Reserve Capital

Cumulative preference shares

Minimum subscription

Reserve Capital and Capital Reserve carry the same meaning.

As per Table F, the Minimum rate of interest that can be charged on calls- in-Arrear and that can be allowed on calls-in-advance are 10% p.m. and 12% p.m. respectively.

Re-issue of forfeited shares is allotment of shares but not a sale. [May 2018, 2 Marks]

Since company has existence independent of its members, it continues to be in existence despite the death, insolvency or change of members. [Nov. 2019, 2 Marks]; [MTP Jan. 2025]

In the balance sheet of X Limited, preliminary expenses amounting to 5 lakhs and securities premium account of ₹ 35 lakhs are appearing. The accountant can use the balance in securities premium account to write off preliminary expenses. [Nov. 2020, 2 Marks]

Re-issue of forfeited shares is allotment of shares but not a sale. [Jan. 2021, 2 Marks]; [MTP Jan. 2025]

A Company is not allowed to issue shares at a discount to the public in general. [July 2021, 2 Marks]

A person holding preference shares of a company cannot hold equity shares of the same company. [July 2021, 2 Marks]

Non-participating preference shareholders enjoy voting rights. [Dec. 2021, 2 Marks]

Fashion Garments Ltd. invited applications for issuing 10,000 Equity Shares of 10 each. The amount was payable as follows:- (i) On Application 1 per share (ii) On Allotment 2 per share (iii) On First call 3 per share (iv) On Second and Final Call 4 per share The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the allotment money and his shares were forfeited immediately after the allotment. Shyam to whom 150 shares were allotted, failed to pay the first call. His shares were also forfeited after the first call. Afterwards the second and final call was made. Mohan to whom 50 shares were allotted failed to pay the second and final call. His shares were also forfeited. All the forfeited shares were re-issued at 9 per share fully paid-up. Pass necessary Journal entries in the books of Fashion Garments Ltd. [Dec. 2021, 15 Marks]; [RTP Jan. 2025; Modified-Figures-3X]

A Limited issued 20,000 Equity shares of 10 each at a premium of 10%, payable 2 on application; 4 on allotment (including premium); ₹ 2 on first call and balance on the final call. All the shares were fully subscribed. Mr. M who held 2000 shares paid full remaining amount on first call itself. The final call which was made after 4 months from the first call was fully paid except a shareholder having 200 shares and one another shareholder having 100 shares. They paid their due amount after 3 months and 4 months respectively along with interest on calls in arrears, Company also paid interest on calls in advance to Mr. M. The Company maintains Calls in Arrear and Calls in Advance A/c. Give journal entries to record these transactions. Show workings of Interest calculation. (Ignore dates). [June 2022, 15 Marks]; [MTP Jan, 2025; Modified; Figures-10X]

BP Limited issued a prospectus inviting applications for 1,20,000 equity shares of 10 each at a premium of 2 per share payable as follows: On Application -3 per share On Allotment - 5 per share (including premium) On First and Final Call - 4 per share Applications were received for 3,60,000 equity shares. Applications for 80,000 shares were rejected and the money refunded. Shares allotted to remaining applications as follows: Category No. of shares Applied No. of shares Allotted I 1,60,000 80,000 II 1,20,000 40,000 Excess money received with applications was adjusted towards sums due on Allotment and the balance amount returned to the applicants. All calls were made duly received except the final call by a shareholder belonging to Category I who has applied for 680 shares. His shares were forfeited. The forfeited shares were reissued at 13 per share fully paid-up. Pass necessary journal entries for the above transactions in the books of BP Ltd. Open call in arrears account whenever required. [June 2023, 15 Marks]; [MTP Jan. 2025]

A Ltd. issued 25,000 equity shares of ₹ 100 each at a premium of ₹ 25 per share payable as follows: On Application ₹ 50 On Allotment 50 including premium, and On Final Call 25 Applications were received for 29,000 shares. Letter of regret were issued to applicants for 4,000 shares and shares were allotted to all other applicants. Mr. A, the holder of 150 shares, failed to pay the allotment and call money, the shares were forfeited. Show the journal entries and cash book in the books of A Limited. [Dec. 2023, 15 Marks]

P Limited issued 6,00,000 equity shares of 10 each at a premium of 2 per share, payable as 3 on application, 5 on allotment (including premium) and the balance in two calls of equal amount. Applications were received for 8,00,000 shares and pro rata allotment was made to all the applicants. The excess application money was adjusted towards allotment. Harish to whom 1600 shares were allotted failed to pay both calls and his shares were subsequently forfeited after second call. You are required to pass journal entries in the books of P Limited and prepare bank account. [Sept. 2024, 15 Marks]

Arpit Ltd., with an authorized capital of ₹ 20,00,000 divided into Equity shares of 10 each, on 1st June, 2023, invited applications for issuing 3,00,000 Equity shares at a premium of 5 per share. The amount was payable as follows: On Application 2 per share On Allotment (1st July, 2023) 7 (including premium) per share On First call (1st Nov., 2023) 3 per share On Final call (1st Jan., 2024) 3 per share All the shares were applied for and allotted. Mr. Naresh who held 20,000 shares paid the whole of the amount due on calls along with allotment money. The final call was fully paid except a shareholder having 5,000 shares who paid his due amount on 1st March, 2024 i.e. after 2 months along with interest on calls in arrears @ 10% p.a. Company also paid interest @ 12% p.a. on calls in advance to Mr. Naresh on 1st Jan., 2024. Give journal entries with narrations to record all these transactions in the books of Arpit Ltd. [Jan. 2025, 15 Marks]

Meaning of debentures

Discount on debentures

Issue of Debentures as Collateral Security

Floating Charge [June 2023, 1 Mark]

Debenture Redemption Premium Account and Discount on issue of debentures Account are Nominal Accounts.

Now Debentures can be issued at Par/Premium but not at discount.

Like Shares a Company can issue debentures with voting rights.

A fixed charge generally covers all the assets of the company including future one. [Dec. 2022, 2 Marks]

Perpetual debentures are payable at the time of liquidation of the company. [June 2023, 2 Marks]

Company X Ltd. is incurring huge losses; the Board of Directors are of the opinion that in case of losses, there is no need to pay interest to debenture holders. [RTP Jan. 2025]

Debentures Suspense Account appears on the liability side of the Balance Sheet of a Company. [MTP Jan. 2025]

On 1st April 2023, Globex Ltd. took over assets of ₹ 9,00,000 and liabilities of 1,20,000 of Himalayan Ltd. for the purchase consideration of 8,80,000. It paid the purchase consideration by issuing 8% debenture of 100 each at 10% premium on same date. XY Ltd. issued another 6000, 8% debenture of 100 at discount of 10% redeemable at premium of 5% after 5 years. According to the terms of the issue 30 is payable on application and the balance on the allotment on debentures. It has been decided to write off the entire loss on issue of discount in the current year itself. You are required to pass the journal entries in the books of XY Ltd. for the financial year 2023-24. [RTP Jan. 2025]

What do you mean by issue of Bonus shares?

Right Issue.

Advantages of Right Issue.

Disadvantages of Right Issue.

Revaluation reserve may be utilised for issuing fully paid bonus shares.

Bonus issue means an issue of additional shares to existing shareholders by paying cash.

Issuing of right shares results in increase in Earning per share.

The following is the abstract of Balance Sheet of Happy Ltd. as on 31st March, 2024: Issued and paid-up capital 90,000 Equity shares of 10 each fully paid-up Less: Calls-in-arrear (10, 000 Equity shares of 2 each) 40,000 Equity shares of ₹ 10 each, 4 cash paid-up Reserves and Surplus: Capital Reserve (realized in cash) Capital Redemption Reserves Securities Premium General Reserve Profit and Loss Account 9,00,000 20,000 8,80,000 1,60,000 60,000 1,60,000 1,00,000 1,20,000 7,00,000 On 1st April, 2024, the company makes final call @ 6 each on 40,000 equity shares. The call money is duly received by 30th April, 2024. On 1st May, 2024, the Board of Directors of the company decided: (i) To forfeit the share on which final call of 2 each is due; (ii) To re-issue the forfeited share @ ₹ 11 each as fully paid up; (iii) To issue fully paid bonus shares in the ratio of one fully paid bonus share for every two fully paid shares held; and (iv) To use minimum balance of Profit and Loss Account. Pass necessary journal entries in the books of the company on the basis of the above decisions. [June 2024, 10 Marks]

Following is the extract of the Balance Sheet of Substance Ltd. as at 31st March, 2024 Authorised capital 45,000 12% Preference shares of ₹ 10 each 4,50,000 4,50,000 Equity shares of 10 each 45,00,000 Issued and Subscribed capital: 49,50,000 36,000 12% Preference shares of 10 each fully paid 3,60,000 4,05,000 Equity shares of 10 each, 8 paid up 32,40,000 Reserves and surplus: General Reserve 5,40,000 Capital Reserve (profit realized on sale of plant) 1,80,000 Securities premium 1,12,500 Profit and Loss Account 9,00,000 On 1st April, 2024, the Company has made final call @ ₹ 2 each on 4,05,000 equity shares. The call money was received by 20th April, 2024. Thereafter, the company decided to capitalize its reserves by way of bonus at the rate of one share for every four shares held. Company decides to use Capital Reserve for bonus issue as it has been realized in cash. Show necessary journal entries in the books of the company and prepare the extract of the Balance Sheet as on 30th April, 2024 after bonus issue. [MTP Jan. 2025]

Discuss the provisions of Section 55 of the Companies Act, 2013.

Explain the conditions when a company should issue new equity shares for redemption of the preference shares. Also discuss the advantages and disadvantages of redemption of preference shares by issue of equity shares. [CA Inter November 2018, 4 Marks]

Methods of redemption of preference shares.

When preference shares are redeemed out of the Profit of the company, a reserve is created in the name of Capital redemption reserve.

Capital redemption reserve is utilized for issuing of fully paid bonus shares only.

A company can redeem its partly paid-up preference shares.

For redemption of preference shares, proceeds from fresh issue of equity shares and debentures can be utilized. [Jan. 2025, 2 Marks]

The following balances appeared in the Books of Mac Ltd. as on 31st December, 2023: 80,000, 10% Preferences shares of 100 each, 75 paid-up 60,00,000 2,00,000 Equity share of 100 each fully paid-up 2,00,00,000 Securities Premium 6,50,000 Capital Redemption Reserve 42,00,000 General Reserve 85,00,000 Under the terms of their issue, the preference shares are redeemable on 31st March, 2024 at a premium of 5%. In order to finance the redemption, the company makes a right issue of 60,000 equity shares of 100 each at a premium of 10%, 25 being payable on application, ₹ 45 (including premi- um) on allotment and the balance on 1st August, 2024. The issue was fully subscribed and the allotment made on 1st March, 2024. The amount due on allotment was duly received by 25th March, 2024. The preference shares were redeemed after fulfilling the necessary conditions of section 55 of the Companies Act, 2013. You are required to pass the necessary Journal Entries (including narrations) to give effect to the above arrangement. Also prepare the Notes to accounts on Share Capital, Reserves and Surplus relevant to the Balance Sheet im- mediately after the redemption of preference share as on 31st March, 2024. Ignore date column in Journal. [June 2024, 15 Marks]

The following is the summarized Balance Sheet of Trinity Ltd. as at 31.3.2023: Liabilities ₹ Assets ₹ Share Capital Fixed Assets 3,00,000 Authorised Less: Dep. 1,00,000 2,00,000 10,000 10% Redeemable Preference Shares of 10 each 1,00,000 Investments 1,00,000 90,000 Equity Shares of 10 each 9,00,000 10,00,000 Issued, Subscribed and Paid- up Capital Current Assets and Loans and Advances Inventory 10,000 10% Redeemable Preference Shares of 10 each 1,00,000 Trade receivables 25,000 10,000 Equity Shares of 10 each 1,00,000 Cash and Bank Balances 50,000 (A) 2,00,000 Reserves and Surplus General Reserve 1,20,000 Securities Premium 70,000 Profit and Loss A/c 18,500 (B) 2,08,500 Current Liabilities and Provisions (C) 11,500 Total (A+B+C) 4,20,000 4,20,000 For the year ended 31.3.2024, the company made a net profit of ₹ 35,000 after providing 20,000 depreciation. The following additional information is available with regard to company's operation : 1. The preference dividend for the year ended 31.3.2024 was paid. 2. Except cash and bank balances other current assets and current liabilities as on 31.3.2024, was the same as on 31.3.2023. 3. The company redeemed the preference shares at a premium of 10%. 4. The company issued bonus shares in the ratio of two share for every equity share held as on 31.3.2024. 5. To meet the cash requirements of redemption, the company sold in- vestments. 6. Investments were sold at 90% of cost on 31.3.2024. You are required to prepare necessary journal entries to record redemption and issue of bonus shares. [RTP Jan. 2025]

The books of Rishab Ltd. showed the following balance on 31st December, 2024: 60,000 Equity Shares of ₹ 10 each fully paid; 36,000 12% Redeemable Preference Shares of ₹ 10 each fully paid; 4,000 10% Redeemable Preference Shares of 10 each, ₹ 8 paid up (all shares issued on 1st April, 2024). Undistributed Reserve and Surplus stood as: Profit and Loss Account 1,60,000; General Reserve 2,40,000; Securities Premium Account 30,000 and Capital Reserve 42,000. For redemption, 6,000 equity shares of 10 each are issued at 10% premium. At the same time, 12% Preference shares are redeemed on 1st January, 2024 at a premium of 2 per share. The whereabouts of the holders of 200 shares. of 10 each fully paid are not known. A bonus issue of equity share was made at par, two shares being issued for every five held on that date out of the Capital Redemption Reserve Account. However, equity shares, issued for redemption are not eligible for bonus. Show the necessary Journal Entries to record the transactions. (Ignore date column) [MTP Jan. 2025]

What are the Provisions under the Companies Act, 2013 for issue of Debentures?

Methods of Redemption of Debentures

A debenture issued at a discount can be redeemed at a premium.

Debentures cannot be redeemed during the life time of the company.

Debenture redemption reserve account is created out of its profits which are available for distribution of dividend.

XYZ Ltd. an unlisted company issued 6000, 12% debentures of ₹ 100 each at a discount of 5% on 01.04.2021. Interest is payable annually on 31st March every year. The debentures are redeemable at premium of 10% in 3 equal annual instalments beginning from 31.03.2022. The company invested in specified securities for the redemption of debentures. Entire loss on issue to be booked in the 1st year. You are required to pass journal entries for all the 3 years. [Sept. 2024, 10 Marks]

A company had issued 20,000, 8% partly convertible debentures of 100 each on April 1, 2023. The debentures are due for redemption on June 1, 2024. The terms of issue of debentures provided that 30% of the debentures will be converted into equity shares (Nominal Value 10) at a price of ₹ 20 per share and remaining will be redeemable at a premium of 5%. (i) Calculate the number of equity shares to be allotted to the debenture holders at the time of conversion. (ii) Give the necessary journal entries related to the conversion and redemption of debentures assuming that the company has created the Debenture Redemption Reserve and also invested required amount for redemption of debentures at the time of issue. Debenture Redemption Reserve Investment are sold at par value. [Jan. 2025, Marks 5]

Reserve Capital

Cumulative preference shares

Minimum subscription

Reserve Capital and Capital Reserve carry the same meaning.

As per Table F, the Minimum rate of interest that can be charged on calls- in-Arrear and that can be allowed on calls-in-advance are 10% p.m. and 12% p.m. respectively.

Re-issue of forfeited shares is allotment of shares but not a sale. [May 2018, 2 Marks]

Since company has existence independent of its members, it continues to be in existence despite the death, insolvency or change of members. [Nov. 2019, 2 Marks]; [MTP Jan. 2025]

In the balance sheet of X Limited, preliminary expenses amounting to 5 lakhs and securities premium account of ₹ 35 lakhs are appearing. The accountant can use the balance in securities premium account to write off preliminary expenses. [Nov. 2020, 2 Marks]

Re-issue of forfeited shares is allotment of shares but not a sale. [Jan. 2021, 2 Marks]; [MTP Jan. 2025]

A Company is not allowed to issue shares at a discount to the public in general. [July 2021, 2 Marks]

A person holding preference shares of a company cannot hold equity shares of the same company. [July 2021, 2 Marks]

Non-participating preference shareholders enjoy voting rights. [Dec. 2021, 2 Marks]

Fashion Garments Ltd. invited applications for issuing 10,000 Equity Shares of 10 each. The amount was payable as follows: | Installment | Amount per share | | :-------------------------- | :--------------- | | On Application | 1 | | On Allotment | 2 | | On First call | 3 | | On Second and Final Call | 4 |
The issue was fully subscribed. Ram to whom 100 shares were allotted, failed to pay the allotment money and his shares were forfeited immediately after the allotment. Shyam to whom 150 shares were allotted, failed to pay the first call. His shares were also forfeited after the first call. Afterwards the second and final call was made. Mohan to whom 50 shares were allotted failed to pay the second and final call. His shares were also forfeited. All the forfeited shares were re-issued at 9 per share fully paid-up.
Pass necessary Journal entries in the books of Fashion Garments Ltd. [Dec. 2021, 15 Marks]; [RTP Jan. 2025; Modified-Figures-3X]

A Limited issued 20,000 Equity shares of ₹10 each at a premium of 10%, payable 2 on application; 4 on allotment (including premium); ₹ 2 on first call and balance on the final call. All the shares were fully subscribed. Mr. M who held 2000 shares paid full remaining amount on first call itself. The final call which was made after 4 months from the first call was fully paid except a shareholder having 200 shares and one another shareholder having 100 shares. They paid their due amount after 3 months and 4 months respectively along with interest on calls in arrears, Company also paid interest on calls in advance to Mr. M. The Company maintains Calls in Arrear and Calls in Advance A/c.
Give journal entries to record these transactions. Show workings of Interest calculation. (Ignore dates).
[June 2022, 15 Marks]; [MTP Jan, 2025; Modified; Figures-10X]

BP Limited issued a prospectus inviting applications for 1,20,000 equity shares of 10 each at a premium of 2 per share payable as follows: | Installment | Amount per share | | :---------------------- | :-------------------- | | On Application | 3 | | On Allotment | 5 (including premium) | | On First and Final Call | 4 |
Applications were received for 3,60,000 equity shares. Applications for 80,000 shares were rejected and the money refunded. Shares allotted to remaining applications as follows: | Category | No. of shares Applied | No. of shares Allotted | | :------- | :-------------------- | :--------------------- | | I | 1,60,000 | 80,000 | | II | 1,20,000 | 40,000 |
Excess money received with applications was adjusted towards sums due on Allotment and the balance amount returned to the applicants. All calls were made duly received except the final call by a shareholder belonging to Category I who has applied for 680 shares. His shares were forfeited. The forfeited shares were reissued at 13 per share fully paid-up.
Pass necessary journal entries for the above transactions in the books of BP Ltd. Open call in arrears account whenever required. [June 2023, 15 Marks]; [MTP Jan. 2025]

A Ltd. issued 25,000 equity shares of ₹ 100 each at a premium of ₹ 25 per share payable as follows: | Stage | Amount (₹) | | :------------ | :--------------------- | | On Application | 50 | | On Allotment | 50 (including premium) | | On Final Call | 25 |
Applications were received for 29,000 shares. Letter of regret were issued to applicants for 4,000 shares and shares were allotted to all other applicants.
Mr. A, the holder of 150 shares, failed to pay the allotment and call money, the shares were forfeited.
Show the journal entries and cash book in the books of A Limited.
[Dec. 2023, 15 Marks]

P Limited issued 6,00,000 equity shares of 10 each at a premium of 2 per share, payable as 3 on application, 5 on allotment (including premium) and the balance in two calls of equal amount. Applications were received for 8,00,000 shares and pro rata allotment was made to all the applicants. The excess application money was adjusted towards allotment. Harish to whom 1600 shares were allotted failed to pay both calls and his shares were subsequently forfeited after second call. You are required to pass journal entries in the books of P Limited and prepare bank account. [Sept. 2024, 15 Marks]

Arpit Ltd., with an authorized capital of ₹ 20,00,000 divided into Equity shares of 10 each, on 1st June, 2023, invited applications for issuing 3,00,000 Equity shares at a premium of 5 per share. The amount was payable as follows: On Application 2 per share On Allotment (1st July, 2023) 7 (including premium) per share On First call (1st Nov., 2023) 3 per share On Final call (1st Jan., 2024) 3 per share All the shares were applied for and allotted. Mr. Naresh who held 20,000 shares paid the whole of the amount due on calls along with allotment money. The final call was fully paid except a shareholder having 5,000 shares who paid his due amount on 1st March, 2024 i.e. after 2 months along with interest on calls in arrears @ 10% p.a. Company also paid interest @ 12% p.a. on calls in advance to Mr. Naresh on 1st Jan., 2024. Give journal entries with narrations to record all these transactions in the books of Arpit Ltd. [Jan. 2025, 15 Marks]

Meaning of debentures

Discount on debentures

Issue of Debentures as Collateral Security

Floating Charge [June 2023, 1 Mark]

Debenture Redemption Premium Account and Discount on issue of debentures Account are Nominal Accounts.

Now Debentures can be issued at Par/Premium but not at discount.

Like Shares a Company can issue debentures with voting rights.

A fixed charge generally covers all the assets of the company including future one. [Dec. 2022, 2 Marks]

Perpetual debentures are payable at the time of liquidation of the company. [June 2023, 2 Marks]

Company X Ltd. is incurring huge losses; the Board of Directors are of the opinion that in case of losses, there is no need to pay interest to debenture holders. [RTP Jan. 2025]

Debentures Suspense Account appears on the liability side of the Balance Sheet of a Company. [MTP Jan. 2025]

On 1st April 2023, Globex Ltd. took over assets of ₹ 9,00,000 and liabilities of 1,20,000 of Himalayan Ltd. for the purchase consideration of 8,80,000. It paid the purchase consideration by issuing 8% debenture of 100 each at 10% premium on same date. XY Ltd. issued another 6000, 8% debenture of 100 at discount of 10% redeemable at premium of 5% after 5 years. According to the terms of the issue 30 is payable on application and the balance on the allotment on debentures. It has been decided to write off the entire loss on issue of discount in the current year itself. You are required to pass the journal entries in the books of XY Ltd. for the financial year 2023-24. [RTP Jan. 2025]

What do you mean by issue of Bonus shares?

Right Issue.

Advantages of Right Issue.

Disadvantages of Right Issue.

Revaluation reserve may be utilised for issuing fully paid bonus shares.

Bonus issue means an issue of additional shares to existing shareholders by paying cash.

Issuing of right shares results in increase in Earning per share.

The following is the abstract of Balance Sheet of Happy Ltd. as on 31st March, 2024: Issued and paid-up capital 90,000 Equity shares of 10 each fully paid-up Less: Calls-in-arrear (10, 000 Equity shares of 2 each) 40,000 Equity shares of ₹ 10 each, 4 cash paid-up Reserves and Surplus: Capital Reserve (realized in cash) Capital Redemption Reserves Securities Premium General Reserve Profit and Loss Account 9,00,000 20,000 8,80,000 1,60,000 60,000 1,60,000 1,00,000 1,20,000 7,00,000 On 1st April, 2024, the company makes final call @ 6 each on 40,000 equity shares. The call money is duly received by 30th April, 2024. On 1st May, 2024, the Board of Directors of the company decided: (i) To forfeit the share on which final call of 2 each is due; (ii) To re-issue the forfeited share @ ₹ 11 each as fully paid up; (iii) To issue fully paid bonus shares in the ratio of one fully paid bonus share for every two fully paid shares held; and (iv) To use minimum balance of Profit and Loss Account. Pass necessary journal entries in the books of the company on the basis of the above decisions. [June 2024, 10 Marks]

Following is the extract of the Balance Sheet of Substance Ltd. as at 31st March, 2024 Authorised capital 45,000 12% Preference shares of ₹ 10 each 4,50,000 4,50,000 Equity shares of 10 each 45,00,000 Issued and Subscribed capital: 49,50,000 36,000 12% Preference shares of 10 each fully paid 3,60,000 4,05,000 Equity shares of 10 each, 8 paid up 32,40,000 Reserves and surplus: General Reserve 5,40,000 Capital Reserve (profit realized on sale of plant) 1,80,000 Securities premium 1,12,500 Profit and Loss Account 9,00,000 On 1st April, 2024, the Company has made final call @ ₹ 2 each on 4,05,000 equity shares. The call money was received by 20th April, 2024. Thereafter, the company decided to capitalize its reserves by way of bonus at the rate of one share for every four shares held. Company decides to use Capital Reserve for bonus issue as it has been realized in cash. Show necessary journal entries in the books of the company and prepare the extract of the Balance Sheet as on 30th April, 2024 after bonus issue. [MTP Jan. 2025]

Discuss the provisions of Section 55 of the Companies Act, 2013.

Explain the conditions when a company should issue new equity shares for redemption of the preference shares. Also discuss the advantages and disadvantages of redemption of preference shares by issue of equity shares. [CA Inter November 2018, 4 Marks]

Methods of redemption of preference shares.

When preference shares are redeemed out of the Profit of the company, a reserve is created in the name of Capital redemption reserve.

Capital redemption reserve is utilized for issuing of fully paid bonus shares only.

A company can redeem its partly paid-up preference shares.

For redemption of preference shares, proceeds from fresh issue of equity shares and debentures can be utilized. [Jan. 2025, 2 Marks]

The following balances appeared in the Books of Mac Ltd. as on 31st December, 2023: 80,000, 10% Preferences shares of 100 each, 75 paid-up 60,00,000 2,00,000 Equity share of 100 each fully paid-up 2,00,00,000 Securities Premium 6,50,000 Capital Redemption Reserve 42,00,000 General Reserve 85,00,000 Under the terms of their issue, the preference shares are redeemable on 31st March, 2024 at a premium of 5%. In order to finance the redemption, the company makes a right issue of 60,000 equity shares of 100 each at a premium of 10%, 25 being payable on application, ₹ 45 (including premi- um) on allotment and the balance on 1st August, 2024. The issue was fully subscribed and the allotment made on 1st March, 2024. The amount due on allotment was duly received by 25th March, 2024. The preference shares were redeemed after fulfilling the necessary conditions of section 55 of the Companies Act, 2013. You are required to pass the necessary Journal Entries (including narrations) to give effect to the above arrangement. Also prepare the Notes to accounts on Share Capital, Reserves and Surplus relevant to the Balance Sheet im- mediately after the redemption of preference share as on 31st March, 2024. Ignore date column in Journal. [June 2024, 15 Marks]

The following is the summarized Balance Sheet of Trinity Ltd. as at 31.3.2023: Liabilities ₹ Assets ₹ Share Capital Fixed Assets 3,00,000 Authorised Less: Dep. 1,00,000 2,00,000 10,000 10% Redeemable Preference Shares of 10 each 1,00,000 Investments 1,00,000 90,000 Equity Shares of 10 each 9,00,000 10,00,000 Issued, Subscribed and Paid- up Capital Current Assets and Loans and Advances Inventory 10,000 10% Redeemable Preference Shares of 10 each 1,00,000 Trade receivables 25,000 10,000 Equity Shares of 10 each 1,00,000 Cash and Bank Balances 50,000 (A) 2,00,000 Reserves and Surplus General Reserve 1,20,000 Securities Premium 70,000 Profit and Loss A/c 18,500 (B) 2,08,500 Current Liabilities and Provisions (C) 11,500 Total (A+B+C) 4,20,000 4,20,000 For the year ended 31.3.2024, the company made a net profit of ₹ 35,000 after providing 20,000 depreciation. The following additional information is available with regard to company's operation : 1. The preference dividend for the year ended 31.3.2024 was paid. 2. Except cash and bank balances other current assets and current liabilities as on 31.3.2024, was the same as on 31.3.2023. 3. The company redeemed the preference shares at a premium of 10%. 4. The company issued bonus shares in the ratio of two share for every equity share held as on 31.3.2024. 5. To meet the cash requirements of redemption, the company sold in- vestments. 6. Investments were sold at 90% of cost on 31.3.2024. You are required to prepare necessary journal entries to record redemption and issue of bonus shares. [RTP Jan. 2025]

The books of Rishab Ltd. showed the following balance on 31st December, 2024: 60,000 Equity Shares of ₹ 10 each fully paid; 36,000 12% Redeemable Preference Shares of ₹ 10 each fully paid; 4,000 10% Redeemable Preference Shares of 10 each, ₹ 8 paid up (all shares issued on 1st April, 2024). Undistributed Reserve and Surplus stood as: Profit and Loss Account 1,60,000; General Reserve 2,40,000; Securities Premium Account 30,000 and Capital Reserve 42,000. For redemption, 6,000 equity shares of 10 each are issued at 10% premium. At the same time, 12% Preference shares are redeemed on 1st January, 2024 at a premium of 2 per share. The whereabouts of the holders of 200 shares. of 10 each fully paid are not known. A bonus issue of equity share was made at par, two shares being issued for every five held on that date out of the Capital Redemption Reserve Account. However, equity shares, issued for redemption are not eligible for bonus. Show the necessary Journal Entries to record the transactions. (Ignore date column) [MTP Jan. 2025]

What are the Provisions under the Companies Act, 2013 for issue of Debentures?

Methods of Redemption of Debentures

A debenture issued at a discount can be redeemed at a premium.

Debentures cannot be redeemed during the life time of the company.

Debenture redemption reserve account is created out of its profits which are available for distribution of dividend.

XYZ Ltd. an unlisted company issued 6000, 12% debentures of ₹ 100 each at a discount of 5% on 01.04.2021. Interest is payable annually on 31st March every year. The debentures are redeemable at premium of 10% in 3 equal annual instalments beginning from 31.03.2022. The company invested in specified securities for the redemption of debentures. Entire loss on issue to be booked in the 1st year. You are required to pass journal entries for all the 3 years. [Sept. 2024, 10 Marks]

A company had issued 20,000, 8% partly convertible debentures of 100 each on April 1, 2023. The debentures are due for redemption on June 1, 2024. The terms of issue of debentures provided that 30% of the debentures will be converted into equity shares (Nominal Value 10) at a price of ₹ 20 per share and remaining will be redeemable at a premium of 5%. (i) Calculate the number of equity shares to be allotted to the debenture holders at the time of conversion. (ii) Give the necessary journal entries related to the conversion and redemption of debentures assuming that the company has created the Debenture Redemption Reserve and also invested required amount for redemption of debentures at the time of issue. Debenture Redemption Reserve Investment are sold at par value. [Jan. 2025, Marks 5]