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Premium on Redemption of preference share

jyotsna (CA) (33 Points)

15 April 2010

Dear All,

Any one Pls tell me that how we derive the amount of Premium on Redemption of preference share.........Whether it is taken from the date of Allotment to redemption of preference share or from the date of receipt of subscripttion amount by the company to the date of redemtion............

Your precious reply is welcomed.

Thanks in advance

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10 Replies

Rasesh (CS CWA MBA (Fin) B.Com LL.B (Spl)) (6501 Points)
Replied 16 April 2010

The premium is generally over the face value of the preference shares and is not required to be calculated pro rata.

However, If i have not understood your query properly, you may elaborate.

1 Like

jyotsna (CA) (33 Points)
Replied 16 April 2010

Thanks Rasesh, but Actually i want to ask when will the liability of company arise to pay premium on redemption of preference share.....when the subscripttttion amt recd. or when company allot the preference shares?

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 16 April 2010

Dear Jyotsna,

Kindly appreciate in case of redemption of preference shares liability of the company arises simply on redemption of preference shares.

This payment of premium on redemption has nothing to do with the date on which subscripttion amount received or when company allots preference shares.

Redemption is a current event whereas allotment and receipt of subscripttion money are past events.

Regards

jyotsna (CA) (33 Points)
Replied 16 April 2010

Ankurji Thanks! Could u pls tell me where it is written in Companies Act?

jyotsna (CA) (33 Points)
Replied 16 April 2010

Can any one tell me what companies act says in regard to the Redeemption of Preference Shares and the treatment of its Premium on redeemption except Section 80 of the Companies Act?

Ankur Garg (Company Secretary and Compliance Officer) (114773 Points)
Replied 16 April 2010

No where written in law.

According to my simple thinking (which I think not gonna help you) premium on redemption is --- allot shares at par and bring money and later on redeem with premium according to terms of issue. It is a simple promise to preference shareholder --- initially you pay us Rs. 10 for one preference share and at the time of redemption we’ll return your money with 20% premium i.e. we’ll pay you Rs. 12 for one preference share at the time of redemption.

ashok khandelwal (service) (32 Points)
Replied 29 August 2011

A company paid premium on redemption of preference share and this preimum agreed by issusing company as agreement made for investment in preference share company . This preimum is besides the dividend paid by company and preimum amount reduce by theamount paid as dividend amount , Can this preimum is treated a deemed dividend or any other nature of expenditure reason being that the company pledged some securities in favour of investor.