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If buy back is made from free resources then what should be created __________
- a)Debenture Redemption Reserve
- b)Capital Redemption Reserve
- c)Statutory liquid Ratio.
- d)None of the above
Correct answer is option 'B'. Can you explain this answer?
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Verified Answer
If buy back is made from free resources then what should be created __...
When shares are redeemed or bought back, the company is required to either replenish the capital by issuing fresh shares in lieu of the redeemed or bought back shares or to transfer their funds to an account called the Capital Redemption Reserve (CRR).
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If buy back is made from free resources then what should be created __...
Capital Redemption Reserve
Creating a Capital Redemption Reserve is the appropriate action when a buyback is made from free resources. Below are the reasons why this reserve is created:
- Protection of Creditors: By creating a Capital Redemption Reserve, the company ensures that the buyback does not affect the rights of creditors. This reserve acts as a safeguard by maintaining the company's capital base.
- Compliance with Regulations: According to the Companies Act, 2013, a company can only buy back its shares out of free reserves, securities premium account, or proceeds of any shares or other specified securities. Therefore, creating a Capital Redemption Reserve ensures compliance with legal requirements.
- Capital Maintenance: The Capital Redemption Reserve is used to maintain the capital of the company. It represents the amount that cannot be distributed as dividends and is set aside to redeem capital.
In conclusion, creating a Capital Redemption Reserve is essential when a buyback is made from free resources. It serves as a protective measure for creditors, ensures compliance with regulations, and helps maintain the company's capital base.
Creating a Capital Redemption Reserve is the appropriate action when a buyback is made from free resources. Below are the reasons why this reserve is created:
- Protection of Creditors: By creating a Capital Redemption Reserve, the company ensures that the buyback does not affect the rights of creditors. This reserve acts as a safeguard by maintaining the company's capital base.
- Compliance with Regulations: According to the Companies Act, 2013, a company can only buy back its shares out of free reserves, securities premium account, or proceeds of any shares or other specified securities. Therefore, creating a Capital Redemption Reserve ensures compliance with legal requirements.
- Capital Maintenance: The Capital Redemption Reserve is used to maintain the capital of the company. It represents the amount that cannot be distributed as dividends and is set aside to redeem capital.
In conclusion, creating a Capital Redemption Reserve is essential when a buyback is made from free resources. It serves as a protective measure for creditors, ensures compliance with regulations, and helps maintain the company's capital base.
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Community Answer
If buy back is made from free resources then what should be created __...
Well! I think ki here free resources means govt. securities or fund from commercial banks n if buy back is made from these sources then the co. have to maintain statutory liquidity ratio.
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If buy back is made from free resources then what should be created __________a)Debenture Redemption Reserveb)Capital Redemption Reservec)Statutory liquid Ratio.d)None of the aboveCorrect answer is option 'B'. Can you explain this answer?
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