Redemption of Preference Share

Illustration 1
Vanities Ltd had an issue 1,000, 12% redeemable preference shares of Rs.100
each, repayable at a premium of 10%. These shares are to be redeemed now out
of the accumulated reserves, which are more than the necessary sum required
for redemption. Show the necessary entries in the books of the company,
assuming that the premium on redemption of shares has to be written off against
the company's Securities Premium Account.
Illustration 2
Sure and Fast Ltd. has part of its share capital in 12% redeemable preference
shares of Rs.100 each, repayable at a premium of 5%. The shares have now
became due for redemption. it is decided that the whole amount will be
redeemed out of a fresh issue of 20,000 equity shares of Rs.10 each at Rs.11
each. The whole amount is received in cash and the 12% preference shares are
redeemed. Show the necessary journal entries in the books of the company.
Illustration 3
The following is the balance sheet of Oscar India Ltd as on 31st March 2011:
Particulars Note No. Amount (Rs.)
I. Equity and Liabilities
Shareholders' Funds
Share Capital 1 5,48,000
Reserves and Surplus 2 1,65,000
Current Liabilities
Trade Payable 3 1,27,000

Total 8,40,000
II. Assets
Non-Current Assets
Fixed Assets 6,00,000
Current Assets
Investment 50,000
Inventories 1,10,000
Cash and Cash Equivalents 80,000
Total 4
8,400
Notes: Rs. Rs.
1. Share Capital
Authorised Issued. subscribed and paid-up: …..
30,000 Equity Shares of Rs.10 each fully paid up 3,00,000
2,500 Preference shares of Rs.100 each fully
Called up 2,50,000
Less- Final call on 100 Preference Shares @Rs.20
per shares unpaid 2,000 2,48,000
5,48,000

2. Reserves and Surplus

Securities Premium 15,000
Surplus 1,50,000

1,65,000

3. Trade Payable
Trade Creditors 1,10,000
Outstanding Expenses 17,000
1,27,000

4. Cash and Cash Equivalent

Balance with Bank 80,000

On 30th June, 2012, the Board of Directors decided to redeem the preference
shares at a premium of 10% and to sell the investments at its market price of
Rs.40,000. They also decided to 755U sufficient number of equity shares of
Rs.10 each at a premium of Rs. 1 per share, required after utilising the profit
and loss account leaving a balance of Rs.50,000. Premium on redemption is
required to be set off against securities premium account.
Repayments on redemption were made in full except to one shareholder holding
50 shares only due to s leaving India for good.
You are required to show the journal entries and the balance sheet of the
company after redemption. Assumption made should be shown in the working.

Illustration 1:

The Balance Sheet of Producers Lid as at 31st March, 2013 is as follows

Particulars Note No. Amount (Rs.)
I. Equity and Liabilities
Shareholders' Funds
Share Capital 1 3,50,000
Reserves and Surplus 2 64,000
Current Liabilities
Trade Payable 3 72,000
Short-term premium 4 39,500
Total 5,26,000
II. Assets
Non-Current Assets
Fixed Assets 5 2,80,000
Current Assets
Short-term Investment 60,000
Inventories 1,30,000
Trade Receivables 50,550
Cash and Cash Equivalents 6 4,950
Total 5,26,000

Note:
1. Share Capital Rs. Rs.
Authorised Issued, subscribed and paid-up …...
40,000 Equity Shares of Rs.10 sach fully paid-up 4,00,000
10,000 10 % Preference share of 100 each 1,00,000
5,00,000
Issued, subscribed and paid-up 25,000 Equity ……….
Shares of RS.10 each, tully paid-up10,000 10 % 2,50,000
Preference share of Rs.100 each. Fully paid up 1,00,000

3,50,000
2. Reserves and Surplus
Securities Premium 10,000
Surplus 54,000
64,000
3. Trade Payable
Supplies of Goods 66,000
Outstanding Expenses 6,500
72,500

4. Short-term Premium
Provision for Income Tax 18,0000
Staff Provision Fund 21,500
39,500

5. Tangible Assets
Plant and Machinery 2,40,000
Staff Provision Fund 40,000
2,80,000
6. Cash and Cash Equivalent
Balance with Bank 4,900
Cash on hand 50
4,950

In order to redeem its preference shares, the company issued 5,000 equity shares
of Rs.10 each at a premium of 10% and sold all of its investment for Rs.70,800.
Preference shares were redeemed at a premium of 10%. Show the necessary
journal entries in the books of the company and prepare the balance sheet of the
company immediately after redemption of preference shares.
Illustration 5:
Kalpataru Construction Ltd.
Balance Sheet
As at 31st March ,2014

I. Equity and Liabilities Rs.

1. Source of Funds
(a.) Share Capital 1 17,22,500
(b.) Reserves and Surplus 2 6,50,00
2. Current Liabilities
Other current liabilities Calls in Adv.
(Final Call on the equity Shares) 3 2,500

Total 23,75,000
II. Assets
1. Non-Current Assets
(a)Fixed Assets
Fixed Assets 12,25,000
(b) Non-Current Asset Investment 2,00,000
2. Current Asset
Cash and Cash Equivalents 9,50,000
Total 23,75,000

Notes
1. Share Capital
Authorised Share Capital issued subscribed
Called up And Paid up Share Capital
1,00,000 Equity shares of Rs.10 each
750 per share called up 7,50,000
Less- Call unpaid 7,500 7,42,500
20,000 12% preference share of Rs.50
each fully called up 10,00,000
Less- Calls unpaid (Rs.10 per shares) 20,000 9,80,000
17,22,500

2. Reserves and Surplus

 Securities Premium 50,000
General Reserve 6,00,000
6,50,000

3. Other Current Liabilities

Call in Advance (Final call on equity shares) 2,500
On 1st April 2014 the Board of Director decided that
(a.) The fully paid preference shares are to be redeemed at a premium of 5% in
may 2014 and for that purpose 50,000 equity shares of Rs.10 each are to be
issued at per in the month of April,2014.
(b.)The 1,000 equity shares owned by a an existing shareholder, who has failed
to pay the allotment money and the 1st call money @2.50 each share are to be
forfeited in the month of June, 2014.
(c.) The final call ff Rs.2.50 per share is to be made in the month of July, 2014
All the above are duly complied with according to the time of schedule. The
amount due on the issue of fresh equity share and on final call are also duly
received except from B who had failed to pay the 1st call money for his 1,000
shares holding, has again failed to pay the final call also. These shares of B have
been forfeited, in the month of august 2014. On the total shares forfeited, 1,500
shares are sold to X in September, 2014 credited as fully paid for Rs.9 per
shares, the whole of A’s shares being included.
Show the necessary journal entries and prepare the balance sheet of the
company as on 30th September 2014.