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Ajay Ltd decides to redeem 10,000 preference shares of Rs. 10/- each at 10% premium. Balance in P & L A/c is Rs. 65,000 and securities premium A/c is Rs. 5,000. You are required to calculate the minimum number of equity shares at the rate of Rs. 10/- each at 20% discount
  • a)
    3125
  • b)
    5625
  • c)
    5000
  • d)
    None
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Ajay Ltd decides to redeem 10,000 preference shares of Rs. 10/- each a...
Calculation:

Step 1: Calculate the total amount required for redemption of preference shares
Total amount required = Face value + Premium
= Rs. 10 + 10% of Rs. 10 = Rs. 10 + Rs. 1 = Rs. 11
Total amount required to redeem 10,000 preference shares = Rs. 11 x 10,000 = Rs. 1,10,000

Step 2: Determine the amount available for redemption
Total amount available = Balance in P&L A/c + Securities Premium A/c
= Rs. 65,000 + Rs. 5,000 = Rs. 70,000

Step 3: Calculate the shortfall amount
Shortfall amount = Total amount required - Total amount available
= Rs. 1,10,000 - Rs. 70,000 = Rs. 40,000

Step 4: Calculate the minimum number of equity shares to be issued at a discount
Face value of each equity share = Rs. 10
Discount rate = 20%
Amount received per equity share = Face value - Discount
= Rs. 10 - 20% of Rs. 10 = Rs. 10 - Rs. 2 = Rs. 8
Minimum number of equity shares required = Shortfall amount / Amount received per equity share
= Rs. 40,000 / Rs. 8 = 5000
Therefore, the minimum number of equity shares to be issued at a discount to redeem the preference shares is 5000. Hence, the correct answer is option 'C'.
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Community Answer
Ajay Ltd decides to redeem 10,000 preference shares of Rs. 10/- each a...
10,000-65,000 = 5000
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Ajay Ltd decides to redeem 10,000 preference shares of Rs. 10/- each at 10% premium. Balance in P & L A/c is Rs. 65,000 and securities premium A/c is Rs. 5,000. You are required to calculate the minimum number of equity shares at the rate of Rs. 10/- each at 20% discounta)3125b)5625c)5000d)NoneCorrect answer is option 'C'. Can you explain this answer?
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