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5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital?
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?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Rede...
Calculation of Cost of Preference Share Capital
- Total number of preference shares issued = 20,000
- Face value of each preference share = Rs. 100
- Total face value of preference shares issued = 20,000 x 100 = Rs. 20,00,000
- Redemption premium on preference shares = 10%
- Redemption value of each preference share = Face value + Premium = Rs. 100 + Rs. 10 = Rs. 110
- Total redemption value of all preference shares = 20,000 x 110 = Rs. 22,00,000
- Cost of issue of preference shares = Rs. 2 per share
- Total cost of issue of all preference shares = 20,000 x 2 = Rs. 40,000
- Total cost of preference share capital = Total cost of issue + Total premium paid on redemption
- Total premium paid on redemption = Total redemption value - Total face value
Calculation of Premium Paid on Redemption
- Total face value of preference shares issued = Rs. 20,00,000
- Redemption premium on preference shares = 10%
- Total redemption value of all preference shares = Rs. 22,00,000
- Total premium paid on redemption = Total redemption value - Total face value = Rs. 2,00,000
Calculation of Cost of Preference Share Capital
- Total cost of issue of all preference shares = Rs. 40,000
- Total premium paid on redemption = Rs. 2,00,000
- Total cost of preference share capital = Total cost of issue + Total premium paid on redemption = Rs. 2,40,000
Explanation
Preference shares are a type of share capital that provide preferential treatment to shareholders in terms of dividends and repayment of capital. In this case, ABC Ltd. has issued 20,000, 8% preference shares of Rs. 100 each, redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share.
To calculate the cost of preference share capital, we need to first calculate the total face value of preference shares issued, which is 20,000 x 100 = Rs. 20,00,000. We also need to calculate the redemption premium on preference shares, which is 10% of the face value. Therefore, the redemption value of each preference share is Rs. 100 + Rs. 10 = Rs. 110.
The total redemption value of all preference shares is calculated by multiplying the number of preference shares issued by the redemption value per share, which is 20,000 x 110 = Rs. 22,00,000. The cost of issue of preference shares is Rs. 2 per share, so the total cost of issue of all preference shares is 20
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?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Rede...
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?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital?
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?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital?.
?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital?.
Solutions for ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? in English & in Hindi are available as part of our courses for B Com.
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?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital?, a detailed solution for ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? has been provided alongside types of ?5. ABC Ltd. issues 20,000, 8% preference shares of Rs. 100 each. Redeemable after 8 years at a premium of 10%. The cost of issue is Rs. 2 per share. Calculate the cost of preference share capital? theory, EduRev gives you an
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