# Redemption of Preference Shares Practical Problem and Solutions

## Practical Problem No.1

A Limited Company issued on 1st July 2000, 10,000 redeemable preference shares of \$10 each. Such shares wee redeemable at a premium of 10%. Two-fifths of this issue was redeemed out of profits on 10th January 2004. On 20th January 2004, the Company issued 20,000 equity shares of \$10 each at a premium of \$4 per share. Out of the proceeds of such issue, the balance of Redeemable Preference Shares was redeemed.

Make journal entries to record these transactions in the books of the company.

## Practical Problem No. 2

X and Company issued 50,000 Equity Shares of \$10 each and 3,000 Redemption Preference Shares of \$100 each. all shares being fully called and paid up. On 31st March 2004, Profit and Loss Account showed an undistributed profit of \$50,000 and the General Reserve Account stood at \$1,20,000. On 2nd April 2004, the directors decided to issue 1,500 6% Preference Shares of \$100 each for cash and to redeem the existing Preference Shares at \$105 utilizing as much profits as would be required for the purpose.

Show the journal entries to record these transactions. Prepare also a summarized Balance Sheet showing the position of the Company on completion of the redemption. On 31st March 2004, the cash balance amounted to \$1,85,000 and Sundry Creditors stood at \$87,000.

Journal Entries

Balance Sheet

## Practical Problem No. 3

The summarised Balance Sheet of a Company is given below:

The Redeemable Preference Shares are to be redeemed at a premium of 10%. The Directors wish that only the minimum number of fresh equity shares of \$10 each at a premium of 5% be issued to provide for the redemption of such preference shares as could not otherwise be redeemed.

You are required to give the journal entries and also prepare the Balance Sheet after redemption.

### Journal

Calculation of minimum number of fresh shares to be issued.

Let dollar value of shares to be issued = X

or

Balance Sheet