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Preference Shares Assignment

The document contains three summaries of accounting problems involving the redemption of preference shares. Each summary provides the original balance sheet, details on the preference shares to be redeemed and how the company plans to finance the redemption. The company plans include selling investments, using company funds, and issuing new equity shares. For each problem, the assistant is asked to provide the journal entries for the redemption and a revised balance sheet.

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459 views

Preference Shares Assignment

The document contains three summaries of accounting problems involving the redemption of preference shares. Each summary provides the original balance sheet, details on the preference shares to be redeemed and how the company plans to finance the redemption. The company plans include selling investments, using company funds, and issuing new equity shares. For each problem, the assistant is asked to provide the journal entries for the redemption and a revised balance sheet.

Uploaded by

Dhairya Shah
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Course: Financial Accounting (FAC114)

Redemption of Preference Shares


ASSIGNMENT
Sum: 1
The following is the Balance-sheet of Casio Limited as on 31.03.2018.
Particulars Note No. Amount
(Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds :
(a) Share Capital
1,20,000 Equity shares of ₹ 10 each
– Fully paid up 12,00,000
1,00,000 – 14% Redeemable Preference shares of
₹ 10 each – ₹ 9 paid up 9,00,000 21,00,000
(b) Reserves and Surplus
Securities Premium A/c 60,000
General Reserve A/c 6,50,000
Profit and Loss A/c 2,80,000 9,90,000
(c) Money Received against Share Warrants
(2) Share Application Money Pending Allotment :
(3) Non-current Liabilities :
(a) Long-term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-term Liabilities
(d) Long-term Provisions
(4) Current Liabilities:
Trade Payables (Creditors) 3,50,000

TOTAL 34,40,000
II. ASSETS
(1) Non-current Assets :
(a) Fixed Assets
Tangible Assets 20,40,000
(b) Non-current Investment 5,50,000 25,90,000
(2) Current Assets :
(a) Current Assets 4,00,000
(b) Bank balance 4,50,000 8,50,000
TOTAL 34,40,000

Redeemable Preference shares are to be redeemed at 10% premium following the legal
provisions. Bank balance to retained at ₹ 3,00,000. Investments were disposed off for ₹ 5,00,000.
For the purpose of redemption, the company decided to issue 15% New Preference Shares of ₹
100 each at par in adequate number.
You are required to pass the accounting entries for redemption and Re-draft the Balance-sheet.
Sum 2

The following is the Balance Sheet of GICT Ltd. as on 31.3.2018

Particulars Note No. Amount


(Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds :
(a) Share Capital
4,000 Equity shares of ₹ 100 each – Fully paid up 4,00,000
9% Redeemable Preference shares of ₹ 100
- ₹ 80 paid up 1,60,000
10% Redeemable Preference shares of ₹ 100
each fully paid up 3,00,000 8,60,000
(b) Reserves and Surplus
Securities Premium A/c 10,000
General Reserve A/c 1,50,000
Profit and Loss A/c 1,50,000 3,10,000
(c) Money Received against Share Warrants
(2) Share Application Money Pending Allotment :
(3) Non-current Liabilities :
(a) Long-term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-term Liabilities
(d) Long-term Provisions
(4) Current Liabilities:
Trade Payables (Creditors) 1,80,000

TOTAL 13,50,000
II. ASSETS
(1) Non-current Assets :
(a) Fixed Assets
Tangible Assets 6,38,000
(b) Non-current Investment 1,90,000 8,28,000

(2) Current Assets :


(a) Current Assets
(b) Bank balance 82,000
(c) Inventories (Stock) 2,40,000
(d) Trade receivables (Debtors) 2,00,000 5,22,000
TOTAL 13,50,000
The company decided to redeem both the Preference shares at 10% premium following the legal
provisions. For this purpose, only necessary numbers of new Equity shares of ₹ 100 each were
issued at 20% premium. It is decided to maintain Cash & Bank Balance at ₹ 88,000. The
investments were sold for ₹ 1,80,000.
You are required to pass the accounting entries for redemption and Re-draft the Balance-sheet.
Sum 3

The following is the Balance sheet of ABC Ltd. as on 31.3.2018

Particulars Note No. Amount


(Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds :
(a) Share Capital
20,000 Equity shares of ₹ 100 each – Fully
paid up 20,00,000
10,000 – 9% Redeemable Preference shares
Of ₹ 100 each fully paid up 10,00,000 30,00,000
(b) Reserves and Surplus
Securities Premium A/c
General Reserve A/C
Profit and Loss A/C 11,50,000 11,50,000
(c) Money Received against Share Warrants
(2) Share Application Money Pending
Allotment :
(3) Non-current Liabilities :
(a) Long-term Borrowings
(b) Deferred Tax Liabilities (Net)
(c) Other Long-term Liabilities
(d) Long-term Provisions
(4) Current Liabilities:
Trade Payables (Creditors) 8,50,000

TOTAL 50,00,000
II. ASSETS
(1) Non-current Assets :
(a) Fixed Assets
Tangible Assets 20,00,000
(b) Non-current Investment 5,00,000 25,00,000

(2) Current Assets :


(a) Current Assets
(b) Bank balance 10,00,000
(c) Inventories (Stock) 10,00,000
(d) Trade receivables (Debtors) 5,00,000 25,00,000
TOTAL 50,00,000

In order to facilitate the redemption of Preference shares, it was decided –


1. to sell the investments for ₹ 4,50,000.
2. to finance part of redemption from company funds subject to leaving in Profit & Loss A/c. ₹
5,00,000.
3. to issue sufficient equity shares of ₹ 100 each at premium of ₹ 10 per share to raise the
balance of funds required.
4. The preference shares were paid on due date at 10% premium and Equity shares were fully
subscribed.
You are required to pass the accounting entries for redemption and Re-draft the Balance-sheet.

From the Text Book: Practical Questions

Sum No. 6 (Page No. 5.39) Required – Only Journal Entries along with working notes.

Sum No. 7 (Page No. 5.40) Required – Journal Entries along with working notes and
Revised Balance-sheet after redemption.

*********

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