Hinduja CompanyLtd. had 5,000,8% Redeemable Preference Shares of`100 each, fully paid up.

The company decided

to redeem the preference shares at par by the issue of sufficient number of equity shares of`10 each fully paid up at
par. You are required to pass necessary Journal Entries including cash transactions in the books of the
company.

Bank A/c Dr 5,00,000

To Equity Share Capital A/c 5,00,000
(Being the issue of 50,000 Equity Shares of`10 each at par
for the purpose of redemption of preference shares, as per
Board Resolution No ……..dated……..)
8% Redeemable Preference Share Capital A/c Dr. 5,00,000
To Preference Shareholders A/c 5,00,000
(Being the amount payable on redemption of preference shares transferred to
Preference Shareholders Account)

Preference Shareholders A/c Dr. 5,00,000

To Bank A/c 5,00,000
(Being the amount paid on redemption of preference
shares)
CLtd.had10,000,10%Redeemable Preference Sharesof`100 each, fully paid up. The company decided to redeem
these preference shares at par, by issue of sufficient number of equity shares of`10 each at a premium of`2 per share
as fully paid up. Pass journal entries

In the books of C Ltd.

Journal Entries
Bank A/c Dr. 12,00,000
To Equity Share Capital A/c 10,00,000
To Securities Premium A/c 2,00,000
(Being the issue of 1,00,000 Equity Shares of`10 each at a premium of`2 per share

10% Redeemable Preference Share Capital A/c Dr. 10,00,000

To Preference Shareholders A/c 10,00,000
(Being the amount payable on redemption of preference shares transferred to
Preference Shareholders A/c)

Preference Shareholders A/c Dr. 10,00,000

To Bank A/c 10,00,000
(Being the amount paid on redemption)
G India Ltd. had 9,000 10% redeemable Preference Shares of`10 each, fully paid up. The company decided to redeem these
preference shares at par by the issue of sufficient number of equity shares of`9 each fully paid up.
You are required to pass necessary Journal Entries

Bank A/c Dr 90,000

To Equity Share Capital A/c 90,000
(Being the issue of 10,000 Equity Shares of 9 each at par)

10% Redeemable Preference Shares Capital A/c Dr. 90,000

To Preference Shareholders A/c 90,000

(Being the amount payable on redemption of preference
shares transferred to Preference Shareholders A/c)

Preference Shareholders A/c Dr. 90,000

To Bank A/c 90,000
(Being the amount paid on redemption of preference shares)

7.9
Following is the Balance Sheet of X Ltd.

Liabilities Amount Assets Amount

Share Capital Fixed Tangible Assets 3000000
Equity share Capital 1800000 Current Assets 800000
Redeemable Preference Share Capital (fully 900000
paid )
Security Premium 100000
General Reserve 600000
Profit and Loss A/C 400000
3800000 3800000

The company has decided to redeem preference shares at premium of 10% out of profit and loss account and general
reserve. Give necessary journal entries relating to redemption of preference shares.

Solution

In the books of X Ltd

Journal
Date Particulars L/ Dr. Amt Cr. Amt
F
Preference Share Capital A/C........................................Dr 900000
Premium on redemption of Preference Shares A/C.......Dr 90000
To Preference Shareholders A/C 990000
(Being amount due on redemption of preference shares including
premium of 10%)
 Profit and Loss A/C.............................................Dr 400000
General Reserve A/C...........................................Dr 500000
To Capital Redemption Reserve A/C 900000
(Amount transferred to Capital Redemption Reserve Account as
required by law )

Security Premium A/C............................................Dr 90000

To Premium on redemption of P.S. A/C 90000
( Being provision of premium on redemption of preference shares out
of security premium account )

Preference Shareholder’s A/C..............................Dr 990000

To Bank A/C 990000
( Being payment made to preference shareholders)

Following is the Balance Sheet of ABC Ltd.

Liabilities Amount Assets Amount

Equity share Capital 500000 Land and Building 1240000
2000 8% Redeemable Preference Shares of 200000 Cash at bank 480000
rs. 100 each (fully paid )
3000 12% Redeemable Preference Shares of 300000
rs. 100 each (fully paid )
Security Premium 50000
Profit and Loss A/C 300000
Creditors 370000
1720000 1720000

Company has decided to redeem both classes of preference shares on 31 st march, 2007 at 5%
premium. The company has decided to utilise undistributed profit for redemption and issue of
fresh equity shares of Rs. 10 each fully paid necessary to provide remaining required funds for
redemption. The issue was fully subscribed. Pass necessary journal entries.

Working Note:

200000 x 5 % = 10000 premium

300000 x 5% = 15000 premium

8 % redeemable pref. share capital 200000 + 10000 = 210000

12 % redeemable pref. share capital 300000 + 15000 = 315000
525000 UNDISTRIBUTED PROFIT
Profit and loss account 300000
225000
Security premium 25000
New equity shares 200000
 EQUITY SHARES
200000
Rs. 10 per share = 20000 equity shares.

In the books of ABC Ltd

Journal
Date Particulars L/ Dr. Amt Cr. Amt
F
1 12 %Preference Share Capital A/C........................................Dr 300000
8 % Preference Share Capital A/c..................................Dr 200000
Premium on redemption of Preference Shares A/C.......Dr 25000
To 12 %Preference Shareholders A/C 315000
To 8 % Preference Shareholders A/C 210000
(Being amount due on redemption of preference shares including
premium of 5%)

2 12 %Preference Shareholders A/C.............................................Dr 315000

8 % Preference Shareholders A/C...........................................Dr 210000
To Bank A/C 525000
(Being amount paid to preference shareholders respectively )

3 Profit and Loss A/C............................................Dr 300000

To Capital Redemption Reserve A/C 300000
( Being amount provided out of profit and loss account transferred to
Capital Redemption reserve account as per the law )
4 Bank A/C............................................................Dr 200000
To Equity Share Capital A/C 200000
( Being 20000 equity shares issued of rs. 10 each fully paid)

5 Security Premium Account A/C...............................................Dr 25000

To Premium on redemption of Preference Shares A/C 25000

( Being premium on redemption transferred to security premium

account)

Following is the Balance Sheet of New Year Ltd. as on 31.3.2008

Liabilities Amount Assets Amount

11% Redeemable Preference Shares of rs. 300000 Fixed Assets 500000

100 each (fully paid )
Equity Share Capital 200000 Investments 200000
General Reserve 100000 Cash at Bank 50000
Profit and Loss A/C 130000
Creditors 20000
 750000 750000

Preference Shares were redeemed at premium of 10%

For the purpose of redemption following has been decided by the company.
1. Sell investment for rs. 190000
2. Minimum balance in the bank shall be required of rs. 20000 for meeting working
capital requirements.
3. To issue sufficient equity shares of rs. 10 + 2.50 per share as premium to raise
balance of fund required for redemption.

Show journal entries for redemption.

Working Note

Total amount needed for redemption

Preference share capital 300000
Premium on redemption10% 30000
330000

Sale of Investment 190000

Cash in hand 30000
 220000

Equity shares to be issued of rs. (330000 – 220000) = 110000

12.5 per equity share including premium

= 8800 new equity shares

8800 shares x 10 per share= 88000 capital 8800 shares x 2.5 premium per share

= 22000 security premium

Balance of Profit and Loss Account after redemption

Balance as per B/S 130000

Less: Loss on sale of investment 10000
Less: Loss on redemption at premium 8000
112000

In the books of New Year Ltd

Journal
Date Particulars L/ Dr. Amt Cr. Amt
F
1 Bank A/C...............................................................................Dr 190000
Profit and Loss A/C................................................................Dr 10000
To Investment A/C 200000
(Being investment sold and loss on sale of investment rs. 10000
debited to profit and loss a/c )

2 11 % Redeemable Preference Share Capital A/C...........................Dr 300000

Premium on redemption of Pref. Shares A/C.................................Dr 30000
To 11 % Preference Shareholders A/C ---- 330000
(Being amount due on redemption of preference shares including
premium of 10% transferred to Preference shareholder’s account)

3 11 %Preference Shareholders A/C.............................................Dr 330000

To Bank A/C 330000
(Being amount paid to preference shareholders )

4 Bank A/C............................................................Dr 110000

To Equity Share Capital A/C 88000
To Security Premium A/C 22000
( Being 8800 equity shares issued of rs. 10 each fully paid plus 2.5 per
share as premium)

5 Security Premium Account A/C...............................................Dr 22000

Profit and Loss A/C..................................................................Dr 8000
 To Premium on redemption of Preference Shares A/C 30000

( Being premium on redemption transferred to security premium

account and loss on redemption of preference shares at premium
debited to profit and loss a/c)

6 General Reserve A/C..........................................................................Dr 100000

Profit and Loss A/C.............................................................................Dr 112000
To Capital Redemption Reserve A/C 212000
(Being capital redemption reserve account created as per mandatory
provisions of the Act)

Balance Sheet after redemption process

Liabilities Amount Assets Amount

Equity Share Capital 200000 Fixed Assets 500000
Addition: New Shares 8800 x 10 88000 Cash at Bank 20000
Capital Redemption Reserve 212000
Creditors 20000
520000 520000
Redemption of Preference Shares

Legal conditions

 AA permission
 BOD resolution
 GM resolution
 Court permission
 Fully paid shares

 Redemption out of : Divisible profits, fresh issue of shares or combination of both

 Redemption of shares at premium- premium out of security premium/CRR / divisible profit
 When out of divisible profit – CRR is to be created
 CRR can be used for issue of bonus shares