Redemption of preference shares

Kartik Iyer

Option (b) is correct. As per provisions of section 55 of Companies Act, 2013 in relation to redemption of preference shares, the NOMINAL VALUE of preference shares to be redeemed must be out of fresh issue. Premium payable on redemption will be provided out of free reserves or Securities Premium A/c (SPA cannot be used if company is S. 133 compliant). Hence, nominal value = 5000 will be out of proceeds of fresh issue. No. of equity shares = 5000/10 = 500. Premium payable on redemption of Rs. 500 will be provided out of credit balance in Profit and Loss A/c.

Kartik Iyer

Option (b) is correct. As per provisions of section 55 of Companies Act, 2013 in relation to redemption of preference shares, the NOMINAL VALUE of preference shares to be redeemed must be out of fresh issue. Premium payable on redemption will be provided out of free reserves or Securities Premium A/c (SPA cannot be used if company is S. 133 compliant). Hence, nominal value = 5000 will be out of proceeds of fresh issue. No. of equity shares = 5000/10 = 500. Premium payable on redemption of Rs. 500 will be provided out of credit balance in Profit and Loss A/c.

Thread Starter

Can I provide that 500( premium on redemption) through any free reserves or only P&l

Kartik Iyer

Any free reserves

Thread Starter

Here please tell whether to use 12 or 10 for dividing 6000 I think 12 because Securities premium only cannot be used for redemption of preference shares but premium on issue of debentures is a capital profit and credited to capital reserve a.c and Capital reserve can be used for redemption of preference shares and hence I used 12 Am I correct ??

CA Suraj Lakhotia Admin

For CRR purpose compare face value of Preference shares and Face value of equity. Any short fall- create CRR>

Thread Starter

Here please tell whether to use 12 or 10 for dividing 6000 I think 12 because Securities premium only cannot be used for redemption of preference shares but premium on issue of debentures is a capital profit and credited to capital reserve a.c and Capital reserve can be used for redemption of preference shares and hence I used 12 Am I correct ??

Thread Starter

..