Page 100 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 4: Buy Back of Securities by Private Limited and Unlisted Public Limited Companies

On 1st April, 2009 the company redeemed all of its preference shares at a premium of 10% and Notes
bought back 25% of its equity shares @ 20 per share. In order to make cash available, the
company sold all the investments for 3, 150 lakh and raised a bank loan amounting to 2,000
lakhs on the security of the company’s plant.
Pass journal entries for all the above mentioned transactions including cash transactions and
prepare the company’s balance sheet immediately thereafter. The amount of securities premium
has been utilized to the maximum extent allowed by law.

Solution:
Journal Entries
Particulars Debit Credit
Bank A/c Dr. 3,150
To Investment A/c
To Profit and Loss A/c 3,000
(Being sale of investments and profit thereon) 150
Bank A/c Dr. 2,000
To Bank Loan A/c 2,000
(Being loan taken from bank)
10% Redeemable preference Share Capital A/c Dr. 2,500
Premium on redemption of preference shareholder Dr. 200
A/c 2,750
To Preference shareholder A/c
(Being redemption of preference shares)
Preference shareholders A/c Dr. 2,750
To Bank A/c 2,750
(Being payment of amount due to preference
shareholders)
Securities premium A/c Dr. 250
To Premium on redemption of preference Dr.
share A/c 250
(Being use of securities premium to provide premium
on redemption of preference shares)
Equity Share capital A/c Dr. 2,000
Securities premium A/c [800 - 250] Dr. 550
General reserves A/c Dr. 1,450
[(200x20) - 2000 - 550] 4,000
To Equity shareholders A/c
(being buy back of equity shares)
Note: Balance of General Reserve
[6000 - 1450] = 4550.
General Reserves A/ c Dr. 4,500
To Capital Redemption Reserve A/c (2000 + 4,500
2500)
(Being creation of capital redemption reserve to the
extent of the face value of preference share redeemed
and equity shares bought back).
Note: Balance in General reserve as on 01.04.09 Contd...
(4550 - 4500) = 50.
Equity shareholders A/c Dr. 4,000
To Bank A/c 4,000
LOVELY PROFESSIONAL UNIVERSITY 93
(Being payment of amount due to equity
shareholders).
Note: Cash at Bank
[1650+3150+2000-2750-4000] = 50