Page 126 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 5: Redemption of Preference Shares

The Balance Sheet of Sanjeev Limited as on 31st December 2005 was as follows: Notes
Liabilities ( ) Assets ( )
Share Capital: Fixed Assets 3,25,000
25,000 Equity Shares of 10 each 2500, 10% Redeemable 2,50,000 Investments 75,000
Stock 50,000
Preference Shares of , 100 each 2,50,000 Debtors 1,25,000
Less Calls-in-Arrear 20 per share 5,000 2,45,000 Bank Balance 1,01,500
Share Premium 30,000 Misc. Exps. 20,000
Reserve Funds 74,000
Profit and Loss Account 45,000
Current Liabilities 52,500
6,96,500 6,96,500

On 1st January 2006, investments costing 50,000 were sold for 45,000.
On the same date, it was decided to redeem the preference shares at a premium of 20% by issuing
sufficient number of equity shares at a discount of 10% subject to leaving a balance of 25,000 in
reserve fund. All payments were made in full, except to a holder 125 shares only due to his
leaving India for good.

You are required to show the journal entries and the balance sheet of the company after
redemption.
Solution:
Sanjeev Limited
Journal

Date Particulars L.F. ( ) ( )
Jan., 1 10% Redeemable Preference Share Capital Account Dr. 2,25,000
Premium on Redemption Account Dr. 45,000
To Preference Shareholder Account 2,70,000
(Being amount due to preference share-holders on redemption of
preference shares with 20% premium)
Share Premium Account Dr. 30,000
Profit and Loss Account Dr. 15,000
To Premium on Redemption Account 45,000
(Being utilisation of share premium and profit in writing off the
premium on redemption of preference shares)
Profit and Loss Account Dr. 25,000
Reserve Fund Account Dr. 49,000
To Capital Redemption Reserve Account 74,000
(Profits and reserve funds utilised for the redemption of preference
shares)
Bank Account Dr. 1,51,002
Discount on Issue of Shares Account Dr. 16,778
To Equity Share Capital Account 1,67,780
(Being fresh shares issued at 10% discount for the redemption of
preference shares)
Bank Account Dr. 45,000
Contd...
Profit and Loss Account Dr. 5,000
To investments account 50,000
(Being sale of investment and loss transferred to P/L A/c)
LOVELY PROFESSIONAL UNIVERSITY 119
Preference Shareholders Account Dr. 2,55,000
To Bank Account 2,55,000
(Being the payment of 2,125 preference shareholders)