Page 120 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 5: Redemption of Preference Shares

Notes
Example 3: Redemption of Preference Shares Out of Profit & Balance Sheet
The following is the summarised balance sheet of Ding Dong Limited as on 31st March 2006:

Liabilities ( ) Assets ( )
Authorised Share Capital: Plant and Machinery 10,00,000
10% Redeemable Preference Shares of 100 each. 3,20,000 Current Assets 6,00,000
Equity Shares of 10 each 10,20,000
13,40,000
Issued and paid up capital:
10% Redeemable Preference
Shares of 100 each fully paid 2,80,000
Equity shares of 10 each fully paid up 8,40,000
Share Premium 35,000
Profit and Loss Account 3,05,000
Creditors 1,40,000
16,00,000 16,00,000

The preference shares were redeemed on 1st April, 2006 at a premium of 10%. No trace could be
found of the holder of 15 preference shares.

You are required to give the journal entries in the books of the company and give its balance
sheet also.
Solution:

Ding Dong Limited
Journal
Date Particulars L.F. ( ) ( )
April 1 10% Redeemable Preferences Share Capital Account Dr. 2,80,000
Premium on redemption of preference shares account Dr. 28,000
To 10% Preference Shareholders Account 3,08,000
(Being amount on redemption due to shareholders with premium)
Profit and Loss Account Dr. 2,80,000
To Capital Redemption Reserve Account 2,80,000
(Being utilisation of profit for the redemption of preference shares)
Share Premium Account Dr. 28,000
To Premium on Redemption of Preferences Shares Account 28,000
(Being utilisation of premium in writing off the premium on
redemption of preference shares)
10% Preferences Shareholders Account Dr. 3,06,350
To Bank Account 3,06,350
(Being payment made to 2,785 Preference shareholders on
redemption)

LOVELY PROFESSIONAL UNIVERSITY 113