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Question

CS 525 views 1 replies

KAUSHIK

Working with CA firm

38 Points Joined July 2008

Please help me to solve this question.

Zutshi Ltd. has 12% redeemable preference share capital of Rs.2,00,000 consisting shares of Rs.100 each fully called and paid-up. The company wants to redeem them at 10% premium. The ledger accounts show the following balances Profit and loss account Rs.40,000 and securities premium account Rs.8,000. The company desires to make a minimum fresh issue of equity shares of Rs.10 each at 5% premium for redemption of the preference shares. You are required to ascertain the amount of such fresh issue to be made by the company

Replies (1)

Aman

Finance Professional

604 Points Joined October 2012

preference shares can be redeemded only out of profits or by proceeds of fresh issue..but if redemption is on premium then such premium amt should be paid out of securities premium or profit available..

In ur qs the nominal value of share is rs.200000 & premium is Rs.2000..p&l is 40000 & sec prem is 8000.

so 1st of all premium on redemption should be paid out of sec prem available amounted to Rs.8000.

now there is no bal in sec prem, so premium on red should be paid out of profits available..i.e Rs.12,000 from profits.

The bal in P&L a/c is now Rs.28,000 (40000-12000)..which should be used to redeem the share nominal value...

now the bal redemtn amt will be Rs.172000 (200000-28000) which will be paid out of proceeds of fresh issue of equity shares..

Correct me if i am wrong..