Capital redemption reserve

CRR Pertain to Capital Redemption Reserve fund which is created to secure the creditor & also it is mandatory to create while making the buy back of Share capital,b'coz after buy back the share capital reduce by such amount.(means the owner has paid  before the liability being pay of the outsider & this give unsecurity to Creditor, that why  it is mandatory to create the same with nominal value of share...) CRR can be used for as per the Act for Instance... Issue of Bonus share,some extend to the payment of Dividend after approval from Central Government.

 

Originally posted by : manoj
	CRR Pertain to Capital Redemption Reserve fund which is created to secure the creditor & also it is mandatory to create while making the buy back of Share capital,b'coz after buy back the share capital reduce by such amount.(means the owner has paid  before the liability being pay of the outsider & this give unsecurity to Creditor, that why  it is mandatory to create the same with nominal value of share...) CRR can be used for as per the Act for Instance... Issue of Bonus share,some extend to the payment of Dividend after approval from Central Government.

                         Thank You very much Manoj but what I was asking is that FROM WHICH ACCOUNT we should create CRR i.e what should be the sequence of FREE RESERVES AND SECURITY PREMIUM ACCOUNT ??

The capital redemption reserve fund is transferred from undistributed profits  i.e general reserves profit or loss account....

If Buyback is from FREE RESERVES or Securities Premium , then, an amount equal to NOMINAL VALUE of Shares so bought back is transferred to CRR.

to create CRR, only profit and loss account should be debited. for DRR, appropriation account to be debited.

In buy back,
For creating CRR.. securities premium is the first priority. Then we should take general reserve and then profit and loss account..
In case of redemption of Preference Shares..
For creating CRR..
The priorities are
General reserve, then
Profit and loss account, then
Capital Reserve..
(ie., CRR is created out of free reserve.. But in case of redemption of Preference Shares, securities premium cannot be treated as free Reserve)

Hi,

As per the Companies Act 2013, CRR is created from the Profits of the company which only includes the Free Reserves.

Hence, Free Reserve includes following items

• Profit and loss accounts
• General Reserve
• Reserve funds
• contingency reserve
• Dividend equalization reserve
• Workmen compensation fund
• workmen accident fund

Therefore, CRR can be created from the above mentioned accounts in the same order of preference.

What bullsh*t you are talking First go and get your base clear FOR CRR only free reserves can be used and securities premium is not a free reserve So be it a buy back or redemption, bottom line is that For crr only free reserves can be used

Hi,

CRR should be created only out of Free Reserves in-case of  Redemption of Pref. Shares.

But, Securities Premium Account can used to create CRR in-case of Buyback as per Sec 68(1) (Explanation II - For the purposes of this section, "free reserves" includes securities premium account) r.w Sec 52 (3)(c) & 69 (1) of Companies Act, 2013

 

 

Is capital redemption reserve part of net worth?

Yes.

Net worth = Share capital + all Reserves

Capital structure = share Capital + specific reserves

Which means,

Capital structure = Net worth - Free reserves