Page 117 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes Bank Account Dr.
To Investment Account or
To other current assets (which are being sold)
(c) When new shares are issued

Bank Account Dr.
To Share Capital Account
Step V: If money available in bank is sufficient, the company will pay off the preferences
shareholders for redemption by cash.
Preference Shareholders Account Dr.
To bank account
Sometimes, the redemption of preference shares is made by the conversion of some new shares;
the following entry will be passed:
Preference Shareholders Account Dr.
To New Share Capital Account.

In this case no amount is required to transfer to Capital Redemption Reserve Account.
Self Assessment

Fill in the blanks:
6. In the condition of excess profits or reserves …………… shares can be issued.
7. When bonus shares are issued at premium, …………… account is credited.
8. If money available in bank is sufficient, the company will pay off the preference
shareholders for redemption by …………… .
True or False:
9. Redemption of preference shares cannot be made from out of the proceeds of fresh issue of
preference shares.
10. Capital redemption reserve is utilised in writing off the preliminary expenses.
11. Premium payable on redemption of preference shares must be debited to Profit and Loss
Account only.

Example 1: Determination of Minimum Amount of Fresh Issue
Find out how much minimum fresh issue is necessary in order to comply with the provisions of
Section 80 of Companies Act in the following cases:
(a) (i) Redeemable preference shares of 1,00,000 are to be redeemed at par and credit
balance of P.L. Account and share premium are 20,000 and 5,000 respectively.
(ii) 7% Redeemable Preference Shares of 1,50,000 are to be redeemed at a premium of
5% and credit balance of Profit and Loss Account and balance of share premium
account are 40,000 and 7,000 respectively in the balance sheet.

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