Company AccountsQ-3 | Redemption of Preference SharesQuestion 5259 of 112
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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]

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Detailed Solution & Explanation

In the books of Rishab Limited Journal Entries Particulars L.F. Amount (Dr.) Amount (Cr.) 12% Redeemable Preference Share Capital A/ c Dr. Premium on Redemption of Preference Shares A/ c Dr. To Preference Shareholders A/ c (Being the amount payable on redemption of 36,000 12% Redeemable Preference Shares transferred lo Shareholders Account) 3,60,000 72,000 4,32,000 Preference Shareholders A/ c Dr. To Bank A/c (Being the amount paid on redemption of 35,800 preference shares) 4,29,600 4,29,600 Bank A/c Dr. To Equity Shares Capital A/ c To Securities Premium A/ c (Being the issue of 6,000 Equity Shares of 10 each at a premium of 10% as per Board's Resolution No ... : ... Dated ...... ) 66,000 60,000 6,000 General Reserve A/ c Dr. Profit & Loss A/ c Dr. To Capital Redemption Reserve A/ c (Working Note) (Being the amount transferred to Capital Redemption Reserve A/ c as per the requirement of the Act) 2,40,000 60,000 3,00,000 Capital Redemption Reserve A/ c Dr. To Bonus to Shareholders A/ c (Being the amount appropriated for issue of bonus share in the ratio of 5:2 as per shareholders Resolution No ...... dated ...) 2,40,000 2,40,000 Bonus to Shareholders A/ c Dr. To Equity Share Capital A/ c (Being the utilisation of bonus dividend for issue of 24,000 equity shares of f 10 each fully paid) 2,40,000 2,40,000 Profit & Loss A/ c Dr. To Premium on Redemption of Preference Shares A/c (Being premium on redemption of preference shares adjusted against to Profit & Loss Account) 72,000 72,000 Working Notes: (1) Partly paid-up preference shares cannot be redeemed. (2) Amount to be Transferred to Capital Redemption Reserve 3,60,000 Account Face value of share to be redeemed Less: Proceeds from fresh issue (excluding premium) (60,000) 3,00,000 (3) No bonus shares on 6,000 equity shares issued for redemption. Note: Bonus shares does not result in receipt of cash, and hence the increase in share capital on account of bonus issue cannot be considered in determination of amount to be transferred to Capital Redemption Reserve. UNIT – 6 (Redemption of Debentures) DESCRIPTIVE QUESTION

About This Chapter: Partnership & Companies

Paper

Paper 1: Accounting

Weightage

15-20%

Key Topics

Admission, Retirement, Death, Shares, Debentures

This chapter covers Admission, Retirement, Death, Shares, Debentures and is part of Paper 1: Accounting in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 15-20% weightage. Focus on understanding core concepts rather than memorizing.

Key Concepts to Understand

Profit and Loss Account

The second part of the final accounts that records all indirect incomes and indirect expenses to determine the Net Profit or Net Loss for the accounting period. It starts with Gross Profit from the Trading Account.

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