Redemption of Preference Share

Description

Contents of Redemption of Preference Share :

➢Two preference over equity share

(i) Payment of dividend

(ii) Payment of capital

➢ V.I.P in nature

➢ Redeemable in nature (maximum 20 years)

➢ No voting right

➢ Rate of dividend fixed

Meaning of Redeemable Preference Share

Balance Sheet (Before Redemption)

Balance Sheet (After redemption)

Provision for Redemption

Companies Act 2013 “Section 55” :

1) Before redemption of capital the amount of redemption of capital should be provided by the company by way of new issue or capital redemption reserve (CRR).

2) New issue of share can be made by way of equity share or preference share.

3) If any company is not able to made a new issue then capital redemption reserve (CRR) should be created out of profits. Only the revenue reserve can be utilized for the purpose of CRR.

Preference Share Capital : a) Security Premium Reserve      b) Capital Reserve

Redemption at premium If any preference share capital is redeemable at premium then such premium should be recognized as a loss for company. Such premium on redemption should be written off against reserve in the following sequence : (a) Security premium reserve (b) Capital reserve (c) Revenue reserve

And Premium on Redemption

Rules of Debit and Credit :

American approach (Modern approach) : 1. Assets - Dr   2. Liabilities - Cr    3. Capital - Cr           4. Revenue - Cr         5. Expenses - Dr

English approach (Traditional approach) :1. Personal Account (Person) :  Debit is the Receiver, Credit is the Giver  2. Real Account (Asset) : Debit what comes in, Credit was goes out     3. Nominal Account (Profit and loss) : Losses and expenses are Debit, Income and gains are Credit.

Journal entries for Redemption of Preference Share

Minimum issue of Share

Statement showing number of new share

Calls in arrear on Preference Share

Some Important Questions

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