MCQ - Redemption of Preference Shares | Principles and Practice of Accounting - CA Foundation PDF Download

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CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Page 2


CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Redemption of Preference shares 
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CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Redemption of Preference shares 
Which of the following statements is false? 
•(a) A company can redeem its preference shares 
•(b) Preference shareholders are creditors of a company 
•(c) The part of the authorized capital which can be called up only 
in the event of liquidation of a company is called reserve capital 
•(d) Capital redemption reserve can be utilized for issuing fully 
paid bonus shares 
Answer: (b) 
Page 4


CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Redemption of Preference shares 
Which of the following statements is false? 
•(a) A company can redeem its preference shares 
•(b) Preference shareholders are creditors of a company 
•(c) The part of the authorized capital which can be called up only 
in the event of liquidation of a company is called reserve capital 
•(d) Capital redemption reserve can be utilized for issuing fully 
paid bonus shares 
Answer: (b) 
S Ltd. issued 2,000 10% Preference shares of Rs.100 each at par, 
which are redeemable at a premium of 10%. For the purpose of 
redemption, the company issued 1,500 Equity Shares of Rs.100 
each at a premium of 20 % per share. At the time of redemption of 
Preference Shares, the amount to be transferred by the company to 
the Capital Redemption Reserve Account = ? 
•(a) Rs.50,000    
•(b) Rs.40,000    
•(c) Rs.2,00,000    
•(d) Rs.2,20,000 
Answer: (a) 
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CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Redemption of Preference shares 
Which of the following statements is false? 
•(a) A company can redeem its preference shares 
•(b) Preference shareholders are creditors of a company 
•(c) The part of the authorized capital which can be called up only 
in the event of liquidation of a company is called reserve capital 
•(d) Capital redemption reserve can be utilized for issuing fully 
paid bonus shares 
Answer: (b) 
S Ltd. issued 2,000 10% Preference shares of Rs.100 each at par, 
which are redeemable at a premium of 10%. For the purpose of 
redemption, the company issued 1,500 Equity Shares of Rs.100 
each at a premium of 20 % per share. At the time of redemption of 
Preference Shares, the amount to be transferred by the company to 
the Capital Redemption Reserve Account = ? 
•(a) Rs.50,000    
•(b) Rs.40,000    
•(c) Rs.2,00,000    
•(d) Rs.2,20,000 
Answer: (a) 
During 2000-2001, T Ltd. issued 20,000, 12% Preference shares of 
Rs.10 each at a premium of 5%, which are redeemable after 4 years 
at par. During the year 2005-2006, as the company did not have 
sufficient cash resources to redeem the preference shares, it issued 
10,000, 14% debentures of Rs.10 each at a premium of 10%. At the 
time of redemption of 12% preference shares, the amount to be 
transferred to capital redemption reserve = ? 
•(a) Rs.90,000    
•(b) Rs.1,00,000   
• (c) Rs.2,00,000   
• (d) Rs.1,10,000 
Answer: (c)