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    Redemption of Preference Shares

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    Anchit Jassal
    The document discusses different types of preference shares under Indian law and the requirements for redeeming preference shares. It defines redeemable preference shares as those that must be redeemed within 20 years, while irredeemable preference shares are only paid back when the company is liquidated. When redeeming preference shares, companies must transfer funds from profits to a capital redemption reserve account. The funds in this account can only be used to issue fully paid bonus shares. Companies can only redeem fully paid preference shares out of fresh share issues or profits available as dividends.

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    Redemption of Preference Shares

    Uploaded by

    Anchit Jassal
    291 views2 pages
    The document discusses different types of preference shares under Indian law and the requirements for redeeming preference shares. It defines redeemable preference shares as those that must be redeemed within 20 years, while irredeemable preference shares are only paid back when the company is liquidated. When redeeming preference shares, companies must transfer funds from profits to a capital redemption reserve account. The funds in this account can only be used to issue fully paid bonus shares. Companies can only redeem fully paid preference shares out of fresh share issues or profits available as dividends.

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    The document discusses different types of preference shares under Indian law and the requirements for redeeming preference shares. It defines redeemable preference shares as those that must be redeemed within 20 years, while irredeemable preference shares are only paid back when the company is liquidated. When redeeming preference shares, companies must transfer funds from profits to a capital redemption reserve account. The funds in this account can only be used to issue fully paid bonus shares. Companies can only redeem fully paid preference shares out of fresh share issues or profits available as dividends.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    291 views2 pages

    Redemption of Preference Shares

    Uploaded by

    Anchit Jassal
    The document discusses different types of preference shares under Indian law and the requirements for redeeming preference shares. It defines redeemable preference shares as those that must be redeemed within 20 years, while irredeemable preference shares are only paid back when the company is liquidated. When redeeming preference shares, companies must transfer funds from profits to a capital redemption reserve account. The funds in this account can only be used to issue fully paid bonus shares. Companies can only redeem fully paid preference shares out of fresh share issues or profits available as dividends.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    Redemption of Preference Shares

    Meaning of redeemable preference shares


    According to Indian Companies Act, 1956, a company cannot issue
    irredeemable preference shares allowed under the Act. Further, the redeemable
    preference shares issued by a company must be redeemed within the maximum
    period (i.e., 20 years at present). Those are shares which would be paid back
    with the capital with in life time of the company, usually for fixed period of
    time

    Meaning of Irredeemable Preference Shares


    Those are shares which would be paid back with the capital only when the
    company is closed (i.e., liquidated)

    Types of Preference Shares


    • Redeemable Preference shares
    • Irredeemable Preference shares
    • Participating Preference shares
    • Non-Participating Preference shares
    • Cumulative Preference shares
    • Non-Cumulative Preference shares

    Capital Redemption Reserve Account


    Capital Redemption Reserve by transferring a sum as may be required from the
    divisible profits or profits otherwise available for dividend. The amount to be
    credited to or transferred to Capital Redemption Reserve

    Journal entry for transfer of divisible profits to Capital Redemption Reserve


    Account
    General reserve (or any other revenue profit) Dr
    To Capital Redemption reserve account

    Divisible Profits
    Profits available for dividend to shareholders are known as Divisible Profits.
    These profits of extraordinary nature, that is non-recurring profits arising sale of
    fixed assets or redemption of fixed liabilities, should not be distributed as
    dividend.
    Conditions relating to redemption of preference shares
    • Only fully paid up Preference Shares will be redeemed.
    • Redemption must be either out of fresh issue of shares or out of profits
    available for payment of dividend
    • The Preference Shares will be redeemed at par/ at a premium.
    • If the Preference Shares are redeemed at a premium, premium will be
    provided either out of Securities Premium Account or Profit and Loss
    Account.
    • Where any Preference Shares are redeemed out of profits for dividend,
    which a sum equivalent to the nominal value of the Preference Shares
    redeemed will be transferred to the “Capital Redemption Reserve A/C”.
    • Capital redemption reserve can be used only for the issue of fully paid
    bonus shares to the shareholders
    • The redemption of Preference Shares will not be taken as reducing the
    Authorised Share Capital of the Company

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