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Which of the following cannot be used for the purpose of creation of capital redemption reserve account?
- a)Profit and loss account (credit balance)
- b)General reserve account
- c)Dividend equalization reserve account
- d)Unclaimed dividends account
Correct answer is option 'D'. Can you explain this answer?
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Which of the following cannot be used for the purpose of creation of c...
Explanation:
The purpose of the capital redemption reserve account is to set aside funds for the redemption of capital. This reserve is required by law in certain jurisdictions and is used to protect the interests of the company's shareholders.
The following options are valid sources for creating the capital redemption reserve account:
A: Profit and loss account (credit balance)
- The profit and loss account can be used to transfer any credit balance to the capital redemption reserve account. This can be done when the company has accumulated profits that are not being distributed as dividends.
B: General reserve account
- The general reserve account can also be utilized to create the capital redemption reserve. A portion of the general reserve can be transferred to the capital redemption reserve account to fulfill the legal requirements.
C: Dividend equalization reserve account
- The dividend equalization reserve account can be used to create the capital redemption reserve. This reserve is created to ensure that a consistent dividend is paid to shareholders even in years when the company's profits fluctuate.
However, the following option cannot be used for the purpose of creating the capital redemption reserve account:
D: Unclaimed dividends account
- The unclaimed dividends account is set up to hold dividends that have not been claimed by shareholders. These funds are held separately and are not available for creating the capital redemption reserve.
In conclusion, option D (Unclaimed dividends account) cannot be used for the purpose of creating the capital redemption reserve account.
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The purpose of the capital redemption reserve account is to set aside funds for the redemption of capital. This reserve is required by law in certain jurisdictions and is used to protect the interests of the company's shareholders.
The following options are valid sources for creating the capital redemption reserve account:
A: Profit and loss account (credit balance)
- The profit and loss account can be used to transfer any credit balance to the capital redemption reserve account. This can be done when the company has accumulated profits that are not being distributed as dividends.
B: General reserve account
- The general reserve account can also be utilized to create the capital redemption reserve. A portion of the general reserve can be transferred to the capital redemption reserve account to fulfill the legal requirements.
C: Dividend equalization reserve account
- The dividend equalization reserve account can be used to create the capital redemption reserve. This reserve is created to ensure that a consistent dividend is paid to shareholders even in years when the company's profits fluctuate.
However, the following option cannot be used for the purpose of creating the capital redemption reserve account:
D: Unclaimed dividends account
- The unclaimed dividends account is set up to hold dividends that have not been claimed by shareholders. These funds are held separately and are not available for creating the capital redemption reserve.
In conclusion, option D (Unclaimed dividends account) cannot be used for the purpose of creating the capital redemption reserve account.
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Which of the following cannot be used for the purpose of creation of capital redemption reserve account?a)Profit and loss account (credit balance)b)General reserve accountc)Dividend equalization reserve accountd)Unclaimed dividends accountCorrect answer is option 'D'. Can you explain this answer?
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