Company Accounts: Redemption of shares doubt

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s.lohani (Querist)
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14 October 2007
Case A : On September 4,2005 the company issued 12000, 7% debentures having a face value of Rs 100 each at a discount of 2.5%. On September 12, the company issued 25000, 8% preference shares of Rs 100 each. On September 29, the company redeemed 30,000, 6% P.S. of Rs 100 each at a premium of 5% together with “one month dividend” thereon. Bank balance on August 31,2005 was 2925000. the bank balance on September 30 is ………

a) How to calculate “ one month dividend”?
b) What is the significance of “”8%”” in “8% preference shares”?

Case B:
Share capital
Equity Capital(rs 100 each)-5lakh, Preference share capital (rs 10 each)-3 lakh, General Reserve-150,000; P/L account 250,000; Debentures- 200,000, Sundry creditor-50k, Loan-25k.
Land-4lakh; Plant-3lakh; Furniture-250,000; Investment 225,000; Debtors-1 lakh; Inventories 150k; Cash- 50,000.
The P.S. shares are redeemable at 10 % premium, the company wishes to maintain cash balance 0f Rs 25,000. It proposes to sell Investment for Rs 2 Lakh. The company proposes to issue sufficient equity shares of Rs 100 each at a premium of 5 % to raise required cash resources.

a) Cash required to effect the above decisions is………
1) 330,000 2) 355,000 3) 25,0000 4) 1,05,000
b) No. of shares issued is…….
a. 1500 b. 1000 c. 950 d. 1500
What is the logic behind these two question and how to find out the answers

KAAPIL

KAAPIL (Expert)
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30 October 2007 Dear Sushant,

These cases are related to Redemption Of Preference Shares.
8% is the rate of dividend which remains fixed in case of Preference Shares which have preference in claimin dividend over equity shares.
Cash required is the amount payable on the redemption (repayment) of preference shares. The redemption can be done either from profits or new issue of equity or preference shares and not debentures. Good Luck

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