Redemption of Preference Shares Problems and Solutions 2023 Exam [BCOM 2nd Sem CBCS Pattern]

In this post you will get Redemption of Preference Shares Problems and Solutions for BCOM 2nd SEM CBCS Pattern. We will try to included all the practical problems asked in:

Redemption of Preference Shares Problems and Solutions

Redemption of Preferences Shares Problems and Solutions

1. (2018) Following are the Ledger balances of X Ltd. As on 31st March, 2018:

Ledger balances as on 31st March, 2018

Credit balances

Rs.

Debit balances

Rs.

Share Capital:

10000 Equity Shares of Rs. 100 each fully paid

4000, 6% Redeemable Preference Shares of Rs. 100 each fully paid

Profit and Loss A/c

General Reserve

Securities Premium

Creditors

 

10,00,000

4,00,000

20,000

4,40,000

20,000

1,00,000

Sundry Assets

Bank Balance

12,20,000

7,60,000

19,80,000

19,80,000

On the above mentioned date, the company redeemed the preference shares at a premium of 5%. Show the Journal Entries and Prepare the Amended Balance Sheet.        8+4=12

Journal Entries

In the Books of X Ltd.

Date

Particulars

L/F

Amount

Dr.

Amount

Cr.

6% Redeemable Preference Share Capital A/c                           Dr.

Premium on redemption A/c (3,00,000 x 5%)                          Dr.

      To Preference Shareholders A/c

(Being the Preference Share due for redemption at a premium of 5%.)

4,00,000

20,000

4,20,000

Profit and Loss Account A/c                                                         Dr.

General Reserve A/c                                                                       Dr.

      To Capital Redemption Reserve A/c

(Being the amount of preference share capital redeemed out of profit is transferred to CRR.)

20,000

3,80,000

4,00,000

Securities Premium Reserve A/c                                                  Dr.

      To Premium on redemption A/c

(Being the premium on redemption adjusted with securities premium.)

20,000

20,000

Preference Shareholders A/c                                                           Dr.

      To Bank A/c

(Being the final payment made to Preference shareholders.)

4,20,000

4,20,000

Balance Sheet of X Ltd

Particulars

Amount (Rs.)

I. Equity & Liabilities:

A) Shareholder’s Fund

1) Share Capital: 10,000 Equity shares of Rs.100 each

2) Reserve & Surplus:

General Reserve (4,40,000 – 3,80,000)

Capital Redemption reserve

B) Non-Current Liabilities

C) Current Liabilities:

Trade Payable (Creditors)

10,00,000

60,000

4,00,000

Nil

1,00,000

Total (A+B+C)

15,60,000

II. Assets:

A) Non-Current Assets

Fixed Assets:

Tangible (Sundry Assets)

B) Current Assets:

Cash and cash equivalents (7,60,000 – 4,20,000)

12,20,000

3,40000

Total (A+B)

15,40,000

2. (2017) Ledger balances of Kaveri Ltd. as at 31st March, 2016 were as follows:

Credit Balances

Rs.

Debit Balances

Rs.

Share Capital: Equity Shares of Rs. 100 each, fully paid

7% Redeemable Preference

Security Premium Reserve

Capital Reserve

Revenue Reserve

6% Debentures

Creditors

5,00,000

3,00,000

50,000

1,00,000

2,00,000

3,00,000

1,50,000

Fixed Assets

Investments

Cash

Other Current Assets

8,00,000

1,00,000

2,00,000

5,00,000

16,00,000

16,00,000

Both the redeemable preference shares and debentures were due for redemption on 1st April, 2016. Kaveri Ltd. took the following steps in this respect:

– It issued 2000 Equity shares of Rs. 100 each at a premium of 10%, the shares were fully subscribed and paid for.

– It sold the investments for Rs. 90,000.

– It arranged a bank loan to the extent necessary.

The redemption was fully carried out. Give Journal Entries to record the above and prepare the Balance Sheet of the company immediately afterwards.

Journal Entries

In the books of Kaveri Ltd.

Date

Particulars

L/F

Amount

Dr.

Amount

Cr.

(i)

Bank A/c                                                                                 Dr.

Revenue Reserve A/c                                                           Dr.

      To Investment A/c

(Being the investments sold and loss debited to revenue reserve account)

90,000

10,000

1,00,000

(ii)

7% Redeemable Preference Share Capital A/c                 Dr.

      To Preference Shareholders A/c

(Being the amount payable on redemption of preference share capital transferred to preference shareholders account)

3,00,000

3,00,000

(iii)

6% Debenture holders A/c                                                    Dr.

      To Debenture Holders A/c

(Being the amount payable on redemption of debentures transferred to debenture holders account)

3,00,000

3,00,000

(iv)

Bank A/c                                                                                      Dr.

      To Equity Share Capital A/c

      To Securities Premium A/c

(Being the 2,000 equity shares of Rs. 100 each issued at a premium of 10% for the purpose of redemption)

2,20,000

2,00,000

20,000

(v)

Revenue reserve A/c                                                                  Dr.

To Capital Redemption Reserve A/c

(Being the amount transferred out of profits to CRR equal to nominal value of shares redeemed otherwise than out of proceeds of fresh issue)

1,00,000

1,00,000

(vi)

Bank A/c                                                                                         Dr.

      To Bank Loan A/c

(Being the loan raised from Bank for redemption.)

90,000

90,000

(vii)

Preference Shareholders A/c                                                      Dr.

Debenture holders A/c                                                                 Dr.

      To Bank A/c

(Being the final payment made to the preference shareholders and debenture holders)

3,00,000

3,00,000

6,00,000

Balance Sheet of KAVERI Ltd

Particulars

Amount (Rs.)

I. Equity & Liabilities:

A) Shareholder’s Fund

1) Share Capital: 7,000 Equity shares of Rs.100 each

2) Reserve & Surplus:

Capital Reserve

Revenue Reserve (2,00,000 – 1,00,000 – 10,000)

Capital Redemption reserve

Securities Premium Reserve

B) Non-Current Liabilities

Long Term Borrowings (Bank Loan)

C) Current Liabilities:

Trade Payable (Creditors)

7,00,000

1,00,000

90,000

1,00,000

70,000

90,000

1,50,000

Total (A+B+C)

13,00,000

II. Assets:

A) Non-Current Assets

Fixed Assets: Tangible

Investment

B) Current Assets:

Cash and cash equivalents (Refer working note)

Other Current Assets

8,00,000

Nil

Nil

5,00,000

Total (A+B)

13,00,000

Cash A/c

Particulars

Amount

Particulars

Amount

To Balance b/d

To Equity Share Capital

To Securities Premium

To Investment A/c

To Bank Loan A/c

2,00,000

2,00,000

20,000

90,000

90,000

By Preference Shareholders

By Debenture Holders A/c

3,00,000

3,00,000

6,00,000

6,00,000

3. (2016) The Balance Sheet of J. K. Ltd. as on 31st March, 2016 is given below:

Liabilities

Amount

Assets

Amount

9% Redeemable Preference

Shares of Rs. 100each fully paid-up

Equity Shares of Rs. 5 each fully paid-up

General Reserve

Profit & Loss A/c

Sundry Creditors

 

6,50,000

2,25,000

1,00,000

2,60,000

57,500

Sundry Assets

Investments

Cash at Bank

9,50,000

2,75,000

67,500

 

 

12,92,500

 

12,92,500

The Preference Shares are to be redeemed on 1st April, 2016 at a premium of 7 ½ %. In order to facilitate redemption, the company had decided the following:

– To sell the investments for Rs. 2,60,000.

– To finance a part of the redemption from the company’s Reserve Fund.

– To issue sufficient equity shares at a premium of Rs. 1 per share to raise the balance of the fund required.

– Minimum bank balance to be retained at Rs. 10,500. The investments were sold, the equity shares were fully subscribed and the preference shares were dully redeemed. Show the Journal Entries and prepare the balance sheet after redemption.        7+5=12

Journal Entries

In the Books of J.K. Ltd

Date

Particulars

L/F

Amount

Amount

 

Bank A/c                                                                          Dr.

Surplus A/c                                                                      Dr.

      To Investment A/c

(Being the investment sold at Rs. 2,60,000 and loss debited to P/L A/c.)

 

2,60,000

15,000

 

 

2,75,000

 

9% Redeemable preference Share Capital A/c          Dr.

Premium on redemption A/c                                        Dr.

      To Preference Shareholders A/c

(Being the preference share capital due for redemption at a premium of 7.5%)

 

6,50,000

48,750

 

 

6,98,750

 

Bank A/c                                                                            Dr.

      To Equity share capital A/c

      To Securities Premium A/c

(Being the 63,625 shares issued @ Rs. 6 including securities premium of Rs. 1 per share)

 

3,81,750

 

3,18,125

63,625

 

General Reserve A/c                                                     Dr.

Surplus A/c                                                                     Dr.

      To Capital Redemption Reserve A/c

(Being the amount of preference share capital redeemed out of profit transferred to Capital Redemption Reserve.)

 

1,00,000

2,31,875

 

 

3,31,875

 

Securities Premium A/c                                               Dr.

      To Premium on redemption A/c

(Being the premium payable on redemption of Preference share charged to securities premium.)

 

48,750

 

48,750

 

Preference shareholders A/c                                       Dr.

      To Bank A/c

(Being the final payment made to preference shareholders.)

 

9,45,000

 

9,45,000

Balance Sheet of JK Ltd

Particulars

Amount

I. Equity & Liabilities:

A) Shareholder’s Fund

1) Share Capital: Equity shares of Rs.5 each

2) Reserve & Surplus:

Surplus

Capital Redemption reserve

Securities Premium Reserve

B) Non-Current Liabilities

C) Current Liabilities:

Trade Payable (Creditors)

5,43,125

13,125

3,31,875

14,875

Nil

57,500

Total (A+B+C)

9,60,500

II. Assets:

A) Non-Current Assets

Fixed Assets:

Tangible (Sundry Assets)

B) Current Assets:

Cash and cash equivalents (7,60,000 – 4,20,000)

9,50,000

10,500

Total (A+B)

9,60,500

Cash A/c

Particulars

Amount

Particulars

Amount

To Balance b/d

To Investment A/c

To Equity Share Capital

To Securities Premium

67,500

2,60,000

3,18,125

63,625

By preference shareholders A/c

     (6,50,000 + 48,750)

By balance c/d

6,98,750

 

10,500

 

7,09,250

 

7,09,250

4. (2016) A limited company has an accumulated reserve of Rs.500000. It was decided to declare bonus of Rs. 300000 out of its reserve. The bonus is too utilized as:

(1)100000 to make the existing 25000 shares of Rs. 10 each fully paid of which Rs. 6 per share called and paid.

(2)200000 by issuing 5000 bonus shares at Rs. 25 each at a premium of Rs. 15 per shares to the existing shareholders. Pass the Journal Entries in the book of the company recording the above transactions.

Journal Entries

In the books of the company

Particulars

L/F

Amount

Amount

Equity share 1st& final call A/c                                                    Dr.

To Equity Share Capital A/c

(Being the equity share 1st& final call money due on 25,000 equity shares @ Rs. 4 each.)

1,00,000

1,00,000

Accumulated Reserves A/c                                                           Dr.

          To Bonus to Shareholders A/c

(Being the bonus dividend payable on 25,000 shares @ Rs.4 each to make partly paid share fully paid)

1,00,000

1,00,000

Bonus to shareholders A/c                                                          Dr.

           To Equity share 1st& final call A/c

(Being the bonus utilised towards payment of final call on 25,000 shares @ Rs.4 each)

1,00,000

1,00,000

Accumulated Reserve A/c                                                          Dr.

      To Bonus to Shareholders A/c

(Being the 5000 bonus share issued to equity shareholders @ Rs.25 per share)

1,25,000

1,25,000

Bonus to Shareholders A/c                                                        Dr.

      To Equity share capital A/c

       To Securities Premium Reserve A/c 

(Being the bonus share transferred to equity share capital A/c)

1,25,000

50,000

75,000

5. (2007) A Limited company has authorized equity capital of Rs. 20 Lakhs divided into shares of Rs. 100 each. The paid-up capital was Rs. 1250000. Besides, the company had 9% Redeemable cumulative shares of Rs. 10 each for Rs. 250000, the balance on the other account were

Securities premium                   Rs. 18,00,000

Profit and loss account             Rs. 72,000      

General reserve                          Rs. 3,40,000

Included in sundry assets were investments of the face value of Rs. 30000 carried in the books at a cost of Rs. 34000. The company decided to redeem cumulative preference shares at a premium of 10% partly by the issue of equity shares of the face value of Rs. 120000 at a premium of 10%. Investments were sold 105% of the face value. All preference share-holders were paid off except 3 shareholders holding 250 shares. After redemption of cumulative pref. shares, fully paid bonus shares were issued in the ratio of 1:4. Pass the journal entries for the above transaction.

Journal Entries.

Date

Particulars

L/F

Amount

Dr.

Amount

Cr.

Bonus A/c                                                            Dr.

Surplus A/c                                                          Dr.

      To Investment A/c

(Being the investment sold at Rs. 31,500 and loss debited to surplus A/c.)

31,500

2,500

34,000

9% Redeemable Cumulative Preference Share Capital a/c     Dr.

Premium on redemption A/c                             Dr.

      To Preference Share Capital A/c

(Being the preference share capital due for redemption at a premium of 10%)

2,50,000

25,000

2,75,000

Bank A/c                                                                  Dr.

      To Equity Share Capital A/c

      To Securities Premium A/c

(Being the shares issued @ Rs. 10 including securities premium of 10%)

1,32,000

1,20,000

12,000

Surplus A/c                                                               Dr.

General Reserve A/c                                                Dr.

      To Capital Redemption Reserve A/c

(Being the amount of preference share capital redeemed out of profit transferred to Capital Redemption Reserve.)

69,500

60,500

1,30,000

Securities Premium A/c                                          Dr.

      To Premium on redemption A/c

(Being the premium payable on redemption of Preference share charged to securities premium.)

25,000

25,000

Preference Shareholders A/c (2,75,000 – 2,750)      Dr.

      To Bank A/c

(Being the final payment made to all preference shareholders except 3 shareholders holding 250 shares)

2,72,250

2,72,250

Capital Redemption Reserve A/c                          Dr.

Securities Premium A/c                                          Dr.

General Reserve A/c                                                Dr.

      To Bonus to Shareholders a/c

(Being the fully paid bonus share issued to the existing equity shareholders @ Rs.10 per share)

1,30,000

5,000

2,07,500

3,42,500

Bonus to Shareholders A/c                                    Dr.

      To Equity Share Capital A/c

(Being the bonus share transferred to equity share capital A/c)

3,42,500

3,42,500

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