Page 130 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 5: Redemption of Preference Shares

Working Note: Notes
1. Bank Balance = 3,00,000 + 2,00,000 + 2,10,000 – 4,40,000
= ` 2,70,000
2. Bonus shares can be issued by using the full amount of premium account.

Example 9: Redemption of Preference Shares by Fresh Issue of Equity Shares or by
Profits or by Both

Pass the necessary journal entries in the books of the company in connection with redeemable
preference shares in the following cases:
(i) A company issued 57,500 equity shares of ` 10 each, fully called up, for the redemption of
10,000; 8% Redeemable Preference Shares of ` 50 each at a premium of 15%.
(ii) For the redemption of 250, 10% preference shares of ` 200 each at a premium of 5%, a
company issued 5,000 equity shares of ` 10 each at 5% premium all payments on these
shares were duly received.
(iii) A company has to redeem 10% Redeemable Preference Shares of ` 5 lakhs using its profits
available for dividend.
(iv) For the payment of 5,000; 9% Redeemable Preference Shares of ` 100 each at a premium of
10%, a company issued 4,000 equity shares of ` 100 each at a premium of 10% and the
balance of the amount was paid out of profit. The full amount was received on this new
issue.
(v) For the redemption of 5,000; 7% Redeemable Preference Shares of ` 500 each, a company
issued 25,000 equity shares of ` 100 each at 10% discount and balance was payable from
profits.
(vi) For the redemption of 4,00; 7% Redeemable Preference Shares of ` 500 each at a premium
of 10%. The company utilised its profit.
Solution:

Journal
Particulars (`) (`)
(i) 8% Redeemable Preference Share Capital Account Dr. 5,00,000
Premium on Redemption Account Dr. 75,000
To Preference Share Holders Account 5,75,000
(Being amount due to preference shareholders on redemption)
Bank Account Dr. 5,75,000
To Equity Share Capital Account 5,75,000
(Being issue of 57,500 shares of ` 10 each for the redemption of
preference shares)
Preference Shareholders Account Dr. 5,75,000
To Bank Account 5,75,000
(Being payment made to preference shareholders on redemption)
(ii) 10% Redeemable Preference Share Capital Account Dr. 50,000
Premium on Redemption Account Dr. 250
To preference shareholders account 50,250
(Being amount due to share holders on redemption with premium)
Share Premium Account Dr. 250 Contd...

To Premium on Redemption Account 250
(Being share premium utilised in writing off the premium on
redemption)
LOVELY PROFESSIONAL UNIVERSITY 123
Bank Account Dr. 50,250
To Equity Share Capital Account 50,000
To Share Premium Account 250
(Being receipt of amount from the issue of shares for redemption)
Preferences Shareholders Account Dr. 50,250
To Bank Account 50,250
(Being payment made to share holders on redemption)
(iii) 10% Redeemable Preference Share Capital Account Dr. 5,00,000
To Preference Shareholders Account 5,00,000
(Being amount due to shareholders on redemption of preference
shares)
Profit and Loss Account Dr. 5,00,000
To Capital Redemption Reserve A/c 5,00,000
(Being utilisation of profit for the redemption of preference shares)
Preference Shareholders Account Dr. 5,00,000
To Bank Account 5,00,000
(Being payment made to shareholders on redemption of preference
shares)
(iv) 9% Redeemable Preference Share Capital Account Dr. 5,00,000
Premium on Redemption Account Dr. 50,000
To Preference Share-holders Account 5,50,000
(Being amount due to share-holders on redemption of preference
shares)
Bank Account Dr. 4,40,000
To Equity Share Capital Account 4,00,000
To Share Premium Account 40,000
(Being receipt of amount from the issue of shares at premium)
Share Premium Account Dr. 40,000
Profit & Loss Account Dr. 10,000
To Premium on Redemption Account 50,000
(Being the utilisation of share premium and profit in writing off
premium on redemption)