Premium Paid under the scheme of Reduction of Share Capital

Others 617 views 2 replies

Chandrashekhar Laddha

CA & CS

98 Points Joined April 2009

Dear Members,

Under the scheme of reduction of share capital, our company is returning the capital to shareholders which is in excess of want of company's requirement. The face value of share of the company is Rs. 10/- whereas fair value offered to be paid to equity shareholders is near to Rs. 50/-.

On the other hand, in our balance sheet particularly in reserve & surplus, we are having balance in share premium account, general reserve account, capital reserve account and credit balance of profit & loss account.

I request to all the member to guide me about the accounting treatment to be given to additional Rs. 40/- being paid to equity shareholders of the company. Please also cite relevant provision of the companies act if any.

Thanks in advance.

CA Chandrashekhar Laddha

+91 99252 37250

Replies (2)

CA Lokesh Pokharna

CA (Ahmedabad Bhilwara Chittorgarh)

4128 Points Joined November 2009

entry for one share as under

cash/bank a/c dr 50

to share cap a.c 10

to securities premimum a/c cr 40

Chandrashekhar Laddha

CA & CS

98 Points Joined April 2009

Thanks Lokesh.

But I am not sure whether premium of Rs. 40/- payable on reduction of share capital can be debited to Share Premium account. As per the provisions of the companies Act, amount lying in share premium account can be utilised for certain specific purposes described in the provisions. Please highlights whether payment of premium to equity shareholder in the case of reduction of share capital is covered under that provisions.

regards

CA Chandrashekhar Laddha