1

AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE
Redemption of Preference Shares
1) From the following information, calculate the amount that should be transferred to capital
redemption reserve account in each of the following cases:
Preference shares to be redeemed Fresh issue of share capital for the purpose
of redemption
i) Rs 12,00,000 at par. Rs 10,00,000 at par
ii) Rs 12,00,000 at premium of 10% Rs 10,00,000 at par
iii) Rs 12,00,000 at par. Rs 10,00,000 at premium of 10%

2) From the following information determine the amount of fresh issue of share for the purpose
of redemption of preference share
Preference shares to be redeemed Available amount of reserve & surplus
i) Rs 12,00,000 at par Securities premium a/c Rs 1,00,000
General Reserve a/c Rs 3,00,000
P & L a/c Rs 3,00,000
ii) Rs 12,00,000 at par P & L a/c Rs 6,00,000
General Reserve Rs 5,00,000
Capital Reserve Rs 1,00,000
iii) Rs 12,00,000 at premium of 10% Securities premium a/c Rs 2,00,000
General Reserve a/c Rs 2,00,000
P & L a/c Rs 5,00,000
Capital Reserve Rs 2,00,000
Dividend equalization reserve Rs 2,00,000

3) In the following cases gives journal entries necessary to record the redemption of preference
share:
i) A company redeems 7,500, 10% preference share of Rs 100 each at par, out of profit
otherwise available for dividend.
ii) A company redeems 7,500, 10% preference share of Rs 100 each at premium of 5%,
out of profit otherwise available for dividend.
iii) A company issue 75,000 equity shares of Rs 10 each at par in order to utilize the
proceeds to redeem 7,500, 10% preference share of Rs 100 each at par. The new issue
is fully subscribed & paid for.
iv) A company issue 75,000 equity shares of Rs 10 each at premium of 20% in order to
utilize the proceeds to redeem 7,500, 10% preference share of Rs 100 each at
premium of 10%. The new issue is fully subscribed & paid for.
v) A company decided to redeem Rs 7,50,000, 10% preference share at a premium of
10%. 30,000 equity shares of Rs 10 each are issued for cash at a premium of 5% for
the purpose of redemption, the balance at the credit of its profit & loss a/c being Rs
15,00,000.
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE
4) The financial position of Raja Private Limited at 31st December, 2021 was as follows:
Balance Sheet as on 31st March, 2021
Liabilities Amount (Rs) Assets Amount (Rs)
Authorized, Issued & subscribed Assets 8,40,000
capital: Cash at Bank 4,00,000
40,000, 5% Redeemable
Preference Shares of Rs 10 each
fully paid 4,00,000
20,000 Equity shares of Rs 10 each
fully paid 2,00,000
Securities premium A/c 50,000
Profit & Loss A/c 3,80,000
Sundry Liabilities 2,10,000
12,40,000 12,40,000

As per terms of issue of the preference share, these were redeemable at a premium of 5% on
1st February, 2022 & it was decided to arrange this as far as possible out of company’s
resources subject to leaving a balance of Rs 50,000 in the credit of Profit & Loss A/c. It was
also decided to raise the balance amount by issue of 17,000 equity shares of Rs 10 each at a
premium of Rs 2.50 per share. You are required to pass journal entries.
(Ans: CRR Rs 2,30,000)
5) The following items appear in the balance sheet of M Ltd as on 31st March, 2021
i) Share capital:
Equity, authorized: 5,00,000 shares of Rs 10 each
Issued & subscribed: 4,00,000 shares of Rs 10 each
Preference:
Authorized, issued & subscribed: 60,000, 14% preference share of Rs 20 each
ii) Investment: Rs 3,50,000
iii) Profit & Loss A/c: Rs 7,00,000
It was decided to redeemed the preference share at a premium of 5% on 31st March,
2022. It was further decided to-
a) Sell investment for Rs 3,00,000
b) Finance part of the redemption from company funds, subject to leaving a balance
of Rs 2,00,000 in the profit & loss a/c
c) Issue sufficient number of equity shares at a premium of Rs 2 to raise the balance
of the funds required, the above decisions have been carried out & the preference
shares redeemed.
Give journal entries to record the transaction.
(Ans CRR: Rs 4,50,000)
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE

6) The following is the balance sheet of Abhipraya Limited as on 31st March, 2021
Liabilities Amount (Rs) Assets Amount (Rs)
Share capital: Fixed Assets 20,00,000
5,000 12% Redeemable Stock 5,00,000
Preference Shares of Rs 100 each 5,00,000 Debtors 50,000
10,000 Equity Shares of Rs 100 Cash 4,50,000
each 10,00,000
Capital Reserve 1,00,000
General Reserve 2,00,000
Securities Premium A/c 1,00,000
Profit & Loss A/c 1,00,000
Current Liabilities 10,00,000
30,00,000 30,00,000

The preference shares are to be redeemed on 1st April, 2022 at 10% premium. On 1st April,
2022, a fresh issue of equity shares was made to the extent it is required under the companies
Act for the purpose of redemption of preference shares. The shortfall in cash resources for
the purpose of redemption after utilizing the proceeds of fresh issue was met by raising a bank
loan, the cash balance of Rs 50,000 being minimum amount of company requires for its
trading operations. Draft journal entries in the books of company to record these transactions
& prepare the balance sheet in the form prescribed by the Companies Act immediately after
redemption.
(Ans: Value of fresh issue: Rs 2,50,000)
7) The following is the Balance sheet of Oskar India Ltd as on 31st March, 2021:
Liabilities Amount (Rs) Assets Amount (Rs)
Preference share capital: Fixed Assets 6,00,000
2,500 Shares of Rs 100 each fully Investments 50,000
called up: 2,50,000 Bank 90,000
Less: Final call of Rs 20 per share
unpaid: 2,000 2,48,000
30,000 Shares of Rs 10 each fully
paid up 3,00,000
Securities Premium A/c 15,000
Profit & Loss A/c 1,50,000
Current Liabilities 27,000
7,40,000 7,40,000

On 30th June, 2022 the board of directors decided to redeem the preference shares at a
premium of 10% & to sell the investment at its market price of Rs 40,000. They also decided
to issue sufficient number of equity shares of Rs 10 at a premium of Re 1 per share, after
utilizing the profit & loss account leaving a balance of Rs 50,000. Repayments on redemption
were made in full except to one shareholder holding 50 shares only due to leaving India for
good. You are required to show journal entries & the Balance sheet of the company after
redemption.
(Ans CRR: Rs 63,000)
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE
8) The under noted balance were extracted from the ledger of Zee Ltd.
i) 10% redeemable preference share:
10,000 shares of Rs 100 each fully called up 10,00,000
Less: calls unpaid at Rs 25 share 5,000
9,95,000

ii) Share premium A/c 1,40,000

iii) Development rebate reserve A/c 5,00,000
iv) General Reserve 3,40,000
v) Proposed dividend since sectioned on preference share: Rs 78,400
The directors redeemed the preference shares at a premium of 10% & for that
proposed made a fresh issue of equity share of Rs 10 each at par for such amount as
necessary for the purpose after utilizing the available sources to the maximum extent
& satisfied that amount of preference dividend Rs 2,00,000 of the development
rebate reserve is free for distribution as dividend. Give journal entries.
(Ans Fresh issue of Share: Rs 4,65,000)

9) The Balance sheet of XYZ as at 31st March, 2021 inter alia includes the following:
Particulars Amount (Rs)
50,000, 8% Preference Shares of Rs 100 each, Rs 70 called up 35,00,000
1,00,000 Equity shares of Rs 100 each fully paid up 1,00,00,000
Securities Premium 5,00,000
Capital Redemption Reserve 20,00,000
General Reserve 50,00,000

Under the terms of their issues, the preference shares are redeemable at premium of 5% on
31st March, 2022. In order to finance the redemption, the company makes a right issue of
50,000 equity shares of Rs 100 each at Rs 110 per share, Rs 20 being payable on application,
Rs 35 (including premium) on allotment & the balance on 1st January, 2022. The issue was fully
subscribed & the allotment made on 1st March, 2022. The money due on allotment were
received by 31-3-2022.
The preference shares were redeemed after fulfilling the necessary conditions of Section 55
of the Companies Act 2013.
You are asked to pass the necessary journal entries. (Ans. CRR: Rs 27,50,000)
10) The following are the balances of P Co. Ltd as on 31 st March 2021:
Particulars Amount (Rs)
2,500 Preference Shares of Rs 100 each fully paid 2,50,000
Less: Calls in Arrear (final call of Rs 20) 1,200
2,48,800
30,000 Equity shares of Rs 100 each fully paid up 3,00,000
Securities Premium 15,000
General Reserve 1,50,000

Preference shares were redeemable on 1st November, 2022 at a premium of 10%. On getting
a reminder about payment of calls-in-arrear, shareholders holding 50 shares, paid their dues
by 1st September, 2022. The shareholders, holding the remaining 10 shares on which calls
were due, became insolvent & was unable to pay the balance. Consequently, the directors
forfeited those shares & reissued them on fully paid on 5th October, 2022 on receiving Rs 500.
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE
Repayments were completed by 31st December, 2022 except in the case of one shareholder
holding 100 shares, who was out of India. Further, 15,000 equity shares of Rs 10 each, were
issued at par for the purpose of redemption. Show necessary journal entries.
(Ans CRR: Rs 1,00,000)
11)
Liabilities Amount (Rs) Assets Amount (Rs)
Share capital: Land & Building 20,00,000
50,000, 9% Redeemable Plant 5,00,000
Preference Shares of Rs 20 Fixtures & Fittings 1,00,000
each fully paid 10,00,000 Motor Vans 40,000
90,000 Equity Shares of Rs 20 Stock 6,60,000
each fully paid 18,00,000 Debtors 2,40,000
General Reserve 4,00,000 Investments 6,00,000
Securities Premium A/c 2,00,000 Bank 3,60,000
Surplus 5,00,000
Current Liabilities 6,00,000
45,00,000 45,00,000

The company exercises its option to redeem all the preference shares at a premium of 5% on
1st April. To finance the redemption, all the investments were sold realising Rs 5,60,000. A
fresh issue of 10,000 ordinary shares of Rs 20 was made at Rs 24 per share payable in full on
1st April. These were duly subscribed & the full amount was received on that date. The
directors wish that only minimum reduction be made in the revenue reserves. You are
required to draft journal entries, including those relating to cash, to record the above
transactions & to set out the balance sheet of the company as it would then appear.
(Ans CRR: Rs 8,00,000; B/s Total: Rs 36,50,000)

12) PQR Ltd had 10,000, 15% Preference shares of Rs 100 each redeemable at 10% premium on
31st March, 2022. The balances of General Reserve A/c & the Securities Premium A/c were Rs
8,00,000 & Rs 10,000 respectively. In order to finance redemption, the company:
i) Sold some of the investments at Rs 3,50,000 (Book Value Rs 5,00,000).
ii) Issued 12% Debentures of Rs 2,00,000 at par
iii) Issued 50,000, 12% Preference shares of Rs 10 each @ 10 % premium.
The 15% Preference shares were redeemed at 10% premium, as per the conditions
laid down in Section 55 of the Company. Record the above transactions in the books
of the company.
(Ans CRR: Rs 5,00,000)
13) (Use of Equation)
i) Preference shares to be redeemed Rs 1,50,000.
ii) Premium on redemption 10%
iii) Profits given in the Balance Sheet Rs 25,000
iv) Securities premium A/c Rs 5,000.
Determine the number & amount of fresh issue of shares issued at a premium of 5%.
Assume the Company doesn’t follow Section 133.
(Ans Value of shares: 1,28,580)
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE

14) The following is the summarised balance sheet of Sonu Ltd as on 31st March 2021:
Particulars Note No. Amount (Rs)
I EQUITY & LIABILITIES
1. Shareholder’s funds
a) Share capital
i) 1,00,000, Equity shares fully up @ Rs 10 10,00,000
each
ii) 4,000, 8% preference shares of Rs 100 4,00,000
each fully paid-up
iii) 3,000, 9% Preference shares of Rs 100
each Rs 80 paid up 2,40,000
b) Reserve & Surplus
i. Securities premium Reserve 50,000
ii. Surplus A/c 5,00,000
II 2. Current Liabilities
Trade Payables (Creditors) 2,70,000
Total 24,60,000
ASSETS
1. Non-current Assets
Fixed Assets 18,00,000
2. Current Assets
a) Cash at Bank 6,60,000
24,60,000

It was decided to redeem both the classes of preference shares on 30 th June, at a premium of
5%. In May 2017, the company issued for cash so many equity shares of Rs 10 each as were
necessary to provide for redemption of both classes of preference shares which could not
otherwise be redeemed. The issue was fully subscribed and all the money were received. You
are required to give the journal entries in the books of the company.
(Ans: CRR – Rs 4,68,000)

15) The following were the balances, inter alia, in the books of XY Ltd as at 31 st March, 2023:
2,00,000 Equity shares of Rs 10 each = Rs 20,00,000
10%, Redeemable Preference Share Capital
10,000 shares of Rs 100 each = Rs 10,00,000
Less: Calls in arrear on 200 shares = Rs (4,000)
= Rs 9,96,000
General Reserve = Rs 7,00,000
The preference shares are due for redemption at premium of 10%. Calls-in-arrears are on
account of five members whose whereabouts are not known.

Balance of General Reserve to be fully utilised for the purpose of redemption and the shortfall
to be made good by issue of equity shares of Rs 10 each at par. The redemption of preference
shares was duly carried out.
Pass journal entries.
(Ans: CRR – Rs 5,80,000)
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE

16) Following is the Balance Sheet of Pankaj Cements Ltd as at March 31, 2023:
Particulars Note No. Amount (Rs)
I EQUITY & LIABILITIES
1. Shareholder’s funds
a) Share capital
i) 60,000, Equity shares fully up @ Rs 10 6,00,000
each
ii) 5,000, 8% preference shares of Rs 100
each fully paid-up 5,00,000
Less: CIA on 200 shares @Rs 20/share (4,000) 4,96,000
b) Reserve & Surplus
i. Securities premium Reserve 30,000
ii. Surplus A/c 3,48,000
2. Current Liabilities
II Trade Payables (Creditors) 2,70,000
Total 15,28,000
ASSETS
1. Non-current Assets 12,00,000
a) Property, Plant & Equipment 1,00,000
b) Investments
2. Current Assets 2,28,000
Cash at Bank 15,28,000

On April 1, 2023, the Board of Directors decided to redeem the preference shares at 10% and
to sell the investment at its market price of Rs 80,000. They also decided to issue sufficient
number of equity shares of Rs 10 each at a premium of Rs 1 per share required after utilising
the P & L a/c leaving balance of Rs 1,00,000. Repayments on redemption were made in full
except to one shareholder holding 100 shares who left India.

You are required to show the journal entries & the balance sheet of the company after
redemption as per Schedule III. Assumptions made should be shown in the working.
(Ans: CRR – Rs 1,80,000; No. of shares – 30,000)

17) Following is the Balance Sheet of Pankaj Cements Ltd. as on March 31, 2023:
Particulars Note No. Amount (Rs)
I EQUITY & LIABILITIES
1. Shareholder’s funds
a) Share capital
i) 50,000, Equity shares fully up @ Rs 10 5,00,000
each
ii) 5,000, 8% preference shares of Rs 100
each Rs 80 paid-up 4,00,000
b) Reserve & Surplus
i. Securities premium Reserve 30,000
ii. Profit & Loss A/c 3,50,000
2. Current Liabilities
Trade Payables (Creditors) 50,000
II Total 13,30,000
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AASHISH JAIN
ASSISTANT PROFESSOR
SRI VENKATESWARA COLLEGE
ASSETS
1. Non-current Assets 11,00,000
a) Property, Plant & Equipment 1,00,000
b) Investments
2. Current Assets 1,30,000
Cash at Bank 15,28,000

Preference shares are to be redeemed at premium of 10%. A final call of Rs 20 per share was
made. 50 Shareholders holding 200 shares failed to pay the call money. Directors decided to
redeem fully paid preference shares utilizing the undistributed profits after leaving Rs
1,02,000 in Profit & Loss A/c. investments were sold for Rs 1,10,000. New equity shares of Rs
10 each at a premium of Rs 1 per share were issued to the public to the extent necessary to
comply with the requirements of law. Repayments on redemption were made in full except
to one shareholder holding 100 shares who was not traceable.
You are required to show the Journal entries in the Books of Pankaj Cements Ltd.
(Ans: CRR – Rs 2,10,000, Fresh issue – Rs 2,70,000)