Page 98 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Sources of Funds
Share capital:

Authorised
100

Issued:
12% redeemable preference shares of ` 100 each fully paid (` in crores)
75
Equity shares of ` 10 each fully paid 25 100
Reserves and surplus
Capital Reserve 15
25
Securities Premium Unit 4: Buy Back of Securities by Private Limited and Unlisted Public Limited Companies

Revenue Reserves 260 300
400
Funds employed in : Notes
Fixed assets : cost 100
Less: Provision for depreciation 100 nil
Investments at cost (Market value ` 400 cr.) 100
Current assets 340
Less : Current liabilities 40 300
400

st
The company redeemed preference shares on 1 April 2009. It also bought back 50 lakh equity
shares of ` 10 each at ` 50 share. The payments for the above were made out of the huge bank
balances, which appeared as a part of Current assets.
You are asked to:

i. Pass journal entries to record the above
ii. Prepare Balance Sheet
iii. Value equity share on net asset basis.
Solution:

Part-I: Journal entries in the books of K Ltd.
(` in crore)
Particulars Debit Credit
a. Redemption of Preference Shares on 1st April 2009
(i) Due Entry
12% Preference Share capital A/c Dr. 75
To Preference Share Hodlers A/c 75
(ii) Payment Entry
Preference Shareholders A/c Dr. 75
To Bank A/c 75
b. Shares bought back
(i) On buy back
Shares bought back A/c Dr. 25
To Bank A/c 25
(50 lakhs shares ` 50 per share)
(ii) On Cancellation
Equity Share capital A/c (50 Lakhs ` 10) Dr. 5
Securities premium A/c (50 Lakhs ` 40) Dr. 20
To Shares bought back A/c 25
(iii) Transfer to Capital Redemption Reserve
Revenue reserve A/c Dr. 80
To Capital Redemption Reserve A/c 80
(Being creation of capital redemption reserve to the
extent of the face value of preference shares redeemed
and equity shares bought back)

LOVELY PROFESSIONAL UNIVERSITY 91