A ltd. Has redeemed its 12% preference shares of 200000 at premium of 4%. To meet the redemption it has issued 198084 worth of shares of 20 each at a premium of 5%. The balance outstanding to the credit of shares premium account after adjusting premium on redemption of preference shares is?

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Answer

Calculation of Balance Outstanding to the Credit of Shares Premium Account

Redemption of Preference Shares:
- 12% preference shares of 200000 were redeemed by the company.
- The premium paid on redemption was 4%.

Issuance of Shares:
- To meet the redemption, the company issued shares worth 198084.
- The face value of each share was 20 and the premium charged was 5%.

Calculation:
- The total amount paid for redemption of preference shares = 200000 + (4% of 200000) = 208000
- The total amount received from issuance of shares = (198084 shares x 20) + (5% of (198084 shares x 20)) = 397603.2
- The excess amount received from issuance of shares over the amount paid for redemption = 397603.2 - 208000 = 189603.2
- This excess amount is credited to the shares premium account.
- Therefore, the balance outstanding to the credit of shares premium account = Excess amount - Premium on redemption of preference shares
- Balance outstanding = 189603.2 - (4% of 200000) = 181603.2

Explanation:
- The company redeemed its preference shares and to meet the redemption, it issued new shares.
- The excess amount received from issuance of shares over the amount paid for redemption is credited to the shares premium account.
- The balance outstanding to the credit of shares premium account is calculated by subtracting the premium paid on redemption of preference shares from the excess amount received from issuance of shares.
- This balance represents the amount available for use by the company for various purposes, such as writing off preliminary expenses, issuing bonus shares, etc.

Answer

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