Page 101 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Debit
Credit
To Investment A/c

To Profit and Loss A/c

(Being sale of investments and profit thereon)
150
Dr. 2,000
Bank A/c

To Bank Loan A/c
2,000
(Being loan taken from bank)
10% Redeemable preference Share Capital A/c

Dr. 2,500
Dr. 200

Premium on redemption of preference shareholder
A/c
2,750

To Preference shareholder A/c
(Being redemption of preference shares)

Dr. 2,750
Preference shareholders A/c
2,750
To Bank A/c

(Being payment of amount due to preference
shareholders)
Dr. 250

Securities premium A/c
Dr.

To Premium on redemption of preference

share A/c
250
(Being use of securities premium to provide premium
on redemption of preference shares)
Dr. 2,000
Equity Share capital A/c

Dr. 550
Securities premium A/c [800 - 250]
General reserves A/c

Dr. 1,450
4,000
[(200x20) - 2000 - 550]
To Equity shareholders A/c
(being buy back of equity shares)
Bank A/c Particulars Dr. 3,150 3,000
Note: Balance of General Reserve
[6000 - 1450] = 4550.
General Reserves A/ c Dr. 4,500
To Capital Redemption Reserve A/c (2000 + 4,500
Accounting for Companies-I 2500)
(Being creation of capital redemption reserve to the
extent of the face value of preference share redeemed
and equity shares bought back).
Notes Note: Balance in General reserve as on 01.04.09
(4550 - 4500) = 50.
Equity shareholders A/c Dr. 4,000
To Bank A/c 4,000
(Being payment of amount due to equity
shareholders).
Note: Cash at Bank
[1650+3150+2000-2750-4000] = 50

Balance Sheet of Diamond Ltd. as on 01.04.09
Liabilities Assets
Share capital Fixed assets
Issued, subscribed and paid up 6,000 Current asset, Loans and 14,000
equity shares of 10 each Advances
Reserves and surplus
Capital Redemption Reserve 5,500 Cash at Bank 50
(1000 + 4500) Other Current assets 8,250
General Reserves 50
Profit and Loss A/c (300+ 150) 450
Secured Loans
9% Debentures 5,000
Bank Loan 2,000
Current liabilities and Provisions
Sundry creditors 2,300
Provisions 1,000
Total 22,300 Total 22,300
Problem 3: XYZ Ltd. has the following capital structure as on 31st March 2009.
Particulars in crores
Equity Share capital (Shares of 10 each) 300
Reserves :
General Reserve 270
Security Premium 100
Profit and Loss A/c 50
Export Reserve (Statutory reserve) 80
Loan Funds 800
The shareholders have on recommendation of Board of Directors approved vide special resolution
at their meeting on 10th April 2009 a proposal to buy back maximum permissible equity shares
considering the huge cash surplus following A/c of one of its divisions.
The market price was hovering in the range of 25 and in order to induce existing shareholders
to offer their shares for buy back, it was decided to offer a price of 20% above market.
Advice the company on maximum number of shares that can be bought back and record journal
entries for the same assuming the buy back has been completed in full within the next 3 months.
If borrowed funds were 1200 lakhs, and 1500 lakhs respectively would your answer change?
Maximum shares that can be bought back:
94 LOVELY PROFESSIONAL UNIVERSITY