11 %preference share will be issued to discharge the preference share...
**Introduction**
In the context of accounting for amalgamation, the issuance of preference shares at a premium is a common method used to discharge the preference shares of the amalgamating company. This allows the amalgamated company to fulfill its obligation to the preference shareholders of the amalgamating company while also raising additional capital.
**Explanation**
Here is a detailed explanation of how the issuance of preference shares at a premium can be used to discharge the preference shares in an amalgamation:
1. **Amalgamation Process**: Amalgamation refers to the combination of two or more companies into one entity. The amalgamation process involves the transfer of assets, liabilities, and shareholders' interests from the amalgamating company to the amalgamated company.
2. **Preference Shares**: Preference shares are a type of share capital that carries preferential rights over ordinary shares. These rights may include a fixed dividend rate, priority in payment of dividends, and preference in the distribution of assets in case of liquidation.
3. **Discharge of Preference Shares**: When two companies are being amalgamated, the preference shareholders of the amalgamating company need to be compensated for the transfer of their shares. This can be done by the issuance of preference shares by the amalgamated company.
4. **Issuance of Preference Shares at Premium**: To provide additional compensation to the preference shareholders of the amalgamating company, the preference shares can be issued at a premium. The premium is the amount received above the face value of the shares.
5. **Calculation of Premium**: The premium on the preference shares can be calculated as a percentage of the face value of the shares. In this case, the premium is 25% of the face value.
6. **Journal Entry**: The journal entry for the issuance of preference shares at a premium to discharge the preference shares can be recorded as follows:
Preference Share Capital A/C (Amalgamated Company) Dr.
To Preference Share Capital A/C (Amalgamating Company) Cr. (issued at face value)
To Securities Premium A/C Cr. (issued at a premium)
The amount recorded in the Securities Premium A/C represents the premium received on the issuance of the preference shares.
7. **Accounting Treatment**: The preference shares issued at a premium are recorded on the balance sheet of the amalgamated company as a liability under the Preference Share Capital A/C. The premium received is recorded under the Securities Premium A/C.
8. **Benefit**: The issuance of preference shares at a premium provides a financial benefit to the amalgamating company's preference shareholders. They receive compensation for the transfer of their shares, and the amalgamated company raises additional capital through the premium.
**Conclusion**
In conclusion, the issuance of preference shares at a premium is a method used to discharge the preference shares in an amalgamation. This allows the amalgamated company to compensate the preference shareholders of the amalgamating company while also raising additional capital. The premium received on the issuance of the preference shares is recorded as a liability under the Preference Share Capital A/C and the Securities Premium A/C on the balance sheet of the amalgamated company.
11 %preference share will be issued to discharge the preference share...
Journal entry for this :-
11% Pref. Share A/c Dr.
premium on Redemption A/c Dr.
To Pref. Share holder A/c