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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 
Meaning 
•Repaying the capital back to the 
preference shareholders at an 
agreed amount on agreed date 
Page 3


CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Meaning 
•Repaying the capital back to the 
preference shareholders at an 
agreed amount on agreed date 
It should be authorised by the Articles Of Association of the 
company 
Redemption should be only of  fully paid shares 
Sources used for redemption can be 
•Fresh proceeds of new shares 
•Divisible profits 
Page 4


CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Meaning 
•Repaying the capital back to the 
preference shareholders at an 
agreed amount on agreed date 
It should be authorised by the Articles Of Association of the 
company 
Redemption should be only of  fully paid shares 
Sources used for redemption can be 
•Fresh proceeds of new shares 
•Divisible profits 
Premium on redemption can be out of 
• Securities premium 
• Divisible profits 
Capital Redemption Reserve equal to face 
value of shares redeemed should be created 
reduced by any fresh issue of share capital 
Page 5


CPT Section A Ch. 9 Unit 3 Fundamentals of 
Accounting 
CA SK Chhabra 
Meaning 
•Repaying the capital back to the 
preference shareholders at an 
agreed amount on agreed date 
It should be authorised by the Articles Of Association of the 
company 
Redemption should be only of  fully paid shares 
Sources used for redemption can be 
•Fresh proceeds of new shares 
•Divisible profits 
Premium on redemption can be out of 
• Securities premium 
• Divisible profits 
Capital Redemption Reserve equal to face 
value of shares redeemed should be created 
reduced by any fresh issue of share capital 
Based On Rights To Dividends 
Based On Redemption 
Based On Participation In Profits 
Based On Convertibility 
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FAQs on PPT - Redemption of Preference Shares - Principles and Practice of Accounting - CA Foundation

1. What is the meaning of redemption of preference shares?
Ans. Redemption of preference shares refers to the process of repaying or buying back the preference shares issued by a company. It is a mechanism through which a company can return the capital invested by the preference shareholders and eliminate their ownership rights in the company.
2. How can a company redeem preference shares?
Ans. A company can redeem preference shares by following the provisions mentioned in its Articles of Association and the terms of the preference share agreement. The company usually needs to fulfill certain conditions, such as obtaining approval from the shareholders, maintaining sufficient profits, and complying with the statutory requirements. The company can either redeem the preference shares at a specified future date or through a call option, where it can repurchase the shares before the maturity date.
3. What are the reasons for redeeming preference shares?
Ans. There are several reasons for a company to redeem preference shares. Some of the common reasons include: - The company wants to reduce its outstanding debt and improve its financial position. - The company may no longer require the capital raised through preference shares, and redeeming them can help in optimizing its capital structure. - The company wants to eliminate the fixed dividend obligations associated with preference shares. - The company may want to regain full control over its ownership and decision-making powers.
4. What happens to the preference shareholders after the redemption of their shares?
Ans. After the redemption of their shares, the preference shareholders lose their ownership rights in the company. They will no longer be entitled to receive dividends or participate in the decision-making process. However, they will be entitled to receive the redemption amount, which is usually the face value of the preference shares along with any premium specified in the share agreement.
5. Are there any legal requirements or restrictions for the redemption of preference shares?
Ans. Yes, there are legal requirements and restrictions for the redemption of preference shares. Companies need to comply with the provisions of the Companies Act and the regulations set by the regulatory authorities. Some common requirements include obtaining shareholder approval through a special resolution, maintaining sufficient profits or free reserves, adhering to the prescribed notice period, and notifying the regulatory authorities about the redemption. Failure to comply with these requirements may result in legal implications for the company.
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