Page 123 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes The preference shares are to be redeemed on 1st January 2006 at 10% premium.
On 1st January 2006, 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 utilising the proceeds of fresh
issue was met by raising a bank loan, the cash balance 25,000 being the minimum the company
requires for its trading operations.
Draft journal entries in the books of the company to record these transactions and prepare the
balance sheet in the form prescribed by the Companies Act 1956, immediately after the
redemption.
[Adapted from B. Com. (Hons.) Delhi 1987]
Solution:
Abhimanyu Limited
Journal
2006 Particulars L.F. ( ) ( )
Jan. 1 11% Redeemable Preference Share Capital Account Dr. 2,50,00
Premium on Redemption Account Dr. 25,000
To Preference Shareholders Account 2,75,000
(Being amount due to preference shareholders on redemption with
premium)
Profit and Loss Account Dr. 50,000
General Reserve Account Dr. 1,00,000
To Capital Redemption Reserve Account 1,50,000
(Being utilisation of general reserve and profits for redemption of
preference shares)
Share Premium Account Dr. 25,000
To Premium on Redemption Account 25,000
(Being utilisation of share premium for writing off the premium on
redemption of preference shares)
Bank Account Dr. 1,00,000
To Equity Share Capital Account 100,000
(Being receipt the proceeds from the issue of fresh shares)
Bank Account Dr. 1,75,000
To Bank Loan Account 1,75,000
(Being raised of bank loan for the redemption of preference shares)
Preferences Shareholders Account Dr. 2,75,000
To Bank Account 2,75,000
(Being the payment made to preference shareholder on redemption of
preference shares)

Balance Sheet of Abhimanyu Limited
as on 1st January 2006

Liabilities ( ) Assets ( )
Share Capital: Fixed Assets: 12,00,000
6,000 Equity Shares of 100 Current Assets:
each fully paid up 6,00,000 Cash Balance 25,000
Reserve & Surplus: Stock 2,50,000
Contd...
Capital Redemption Reserve 1,50,000 Loans and Advances:
Capital Reserve 50,000 Debtors 25,000
Share Premium 25,000
116 LOVELY PROFESSIONAL UNIVERSITY
Secured Loans:
Bank Loan 1,75,000
Creditors 5,00,000
15,00,000 15,00,000