Fill in the blank: The redemption of preference shares can only be made from ___ or from the proceeds of a fresh issue of shares.

Divisible or distributable profits

True or False: Preference shares can be redeemed without being fully paid up.

False. Preference shares cannot be redeemed unless they are fully paid.

What are the advantages of redeeming preference shares using undistributed divisible profits?

This method does not alter equity shareholding percentages and effectively utilizes surplus funds.

What are the implications of issuing new equity shares for redeeming preference shares?

Issuing new equity shares avoids immediate cash outflow and retains equity interest but may dilute future earnings and change shareholding structure.

True or False: If a company issues shares at a premium, the premium amount is considered part of the proceeds for redeeming preference shares.

False. The premium amount is not included in the proceeds for redemption calculations.

What is the rationale behind requiring a fresh issue of shares for the redemption of preference shares?

This requirement ensures that the redemption does not reduce shareholders' funds, thus protecting the interests of creditors.

Explain the difference between redeeming fully paid shares and partly paid shares.

Fully paid shares can be redeemed immediately, while partly paid shares require all calls to be paid to become eligible for redemption.

Fill in the blank: When redeeming preference shares at a premium, any excess amount must be accounted as ___ on redemption.

Premium on redemption

What happens to the balance in the Shares Forfeited Account if preference shares are forfeited?

The balance is transferred to the Capital Reserve, as forfeited shares cannot be reissued.

Describe the conditions under which a company can redeem preference shares using proceeds from a fresh issue.

Companies can redeem preference shares.

• Requires proceeds from new shares.

• Shares must be fully paid.

• Must comply with regulations.