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.

*********