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X Co. Ltd. has to redeem 1,000 preference shares of 100 each at 10 per cent premium. It issues 5,000 equity shares of 10 each at 10 per cent. General Reserve amount transferred to capital redemption reserve will be.?
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X Co. Ltd. has to redeem 1,000 preference shares of 100 each at 10 per...
Capital Redemption Reserve Calculation:
1. Redemption of Preference Shares:
X Co. Ltd is redeeming 1,000 preference shares of 100 each at a 10% premium. This means the total redemption amount will be:
100 * 1,000 = 100,000
Premium = 10% of 100,000 = 10,000
Total redemption amount = 100,000 + 10,000 = 110,000
2. Issue of Equity Shares:
To fund the redemption of preference shares, the company is issuing 5,000 equity shares of 10 each at a 10% premium. The total amount raised will be:
10 * 5,000 = 50,000
Premium = 10% of 50,000 = 5,000
Total amount raised = 50,000 + 5,000 = 55,000
3. Transfer to Capital Redemption Reserve:
The difference between the total redemption amount and the total amount raised through the issue of equity shares is transferred to the Capital Redemption Reserve. Therefore,
Capital Redemption Reserve = Total redemption amount - Total amount raised
Capital Redemption Reserve = 110,000 - 55,000
Capital Redemption Reserve = 55,000
Therefore, the amount transferred to Capital Redemption Reserve from General Reserve will be 55,000. This reserve is created to account for the amount utilized for the redemption of preference shares out of profits.
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X Co. Ltd. has to redeem 1,000 preference shares of 100 each at 10 per cent premium. It issues 5,000 equity shares of 10 each at 10 per cent. General Reserve amount transferred to capital redemption reserve will be.?
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