CORPORATE REPORTING

Limited
Companies
Redemption of shares by a
company
Redemption of shares by a company
 The Companies Act permits a company to issue
redeemable shares provided that it has issued other shares
which are not redeemable.
 The Companies Act is concerned with the protection of
creditors, who may suffer if capital of companies are
depleted.
 The Act required companies to replace redeemed capital by:
 1. Either using the proceeds of a new issue of shares
 2. Or ensuring that revenue reserves (which could be
distributed as cash dividends to shareholders) are converted
into a capital reserve known as a Capital Redemption
Reserve, making them unavailable for cash distributions
 3. Or a combination of both 1 and 2
Activity 1
SOFP RM000
Non-current assets 1000
Net current assets 700
1700
Equity
Ordinary shares of RM 1 1300
General reserve 250
Retained earnings 150
1700

The company has decided to redeem 300,000 ordinary shares. The

redemption will be made from the issue of 200,000 ordinary shares of
RM1 each at a price of RM1.50.
Required: Re-draft the SOFP after the redemption exercise.
Activity 2
SOFP RM000
Non-current assets 1000
Net current assets 700
1700
Equity
Ordinary shares of RM 1 1300
General reserve 250
Retained earnings 150
1700

The company has decided to redeem 300,000 ordinary shares. No new

issue of ordinary shares should be issued to fund the redemption
exercise.
Required: Re-draft the SOFP after the redemption exercise.
Test your understanding (1)
SOFP RM000
Non-current assets 1300
Net current assets 550
1850
Equity
Ordinary shares at RM 1 each 1300
Share premium 200
General reserve 200
Retained earnings 150
1850

(a) The company has decided to redeem 300,000 ordinary shares out of the
proceeds of an issue of 150,000 new ordinary shares of RM1 each at a price
of RM2.
Required: Prepare the adjusted SOFP after the redemption of shares.
Test your understanding (2)
 (b)The company has decided to redeem the shares
without the issue of any new shares.
 Required:
 Prepare the adjusted SOFP immediately after the
redemption of shares.
Q & A session