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Page 1 CPT Section A Ch. 9 Unit 3 Fundamentals of Accounting CA SK Chhabra Page 2 CPT Section A Ch. 9 Unit 3 Fundamentals of Accounting CA SK Chhabra Meaning •Repaying the capital back to the preference shareholders at an agreed amount on agreed date Page 3 CPT Section A Ch. 9 Unit 3 Fundamentals of Accounting CA SK Chhabra Meaning •Repaying the capital back to the preference shareholders at an agreed amount on agreed date It should be authorised by the Articles Of Association of the company Redemption should be only of fully paid shares Sources used for redemption can be •Fresh proceeds of new shares •Divisible profits Page 4 CPT Section A Ch. 9 Unit 3 Fundamentals of Accounting CA SK Chhabra Meaning •Repaying the capital back to the preference shareholders at an agreed amount on agreed date It should be authorised by the Articles Of Association of the company Redemption should be only of fully paid shares Sources used for redemption can be •Fresh proceeds of new shares •Divisible profits Premium on redemption can be out of • Securities premium • Divisible profits Capital Redemption Reserve equal to face value of shares redeemed should be created reduced by any fresh issue of share capital Page 5 CPT Section A Ch. 9 Unit 3 Fundamentals of Accounting CA SK Chhabra Meaning •Repaying the capital back to the preference shareholders at an agreed amount on agreed date It should be authorised by the Articles Of Association of the company Redemption should be only of fully paid shares Sources used for redemption can be •Fresh proceeds of new shares •Divisible profits Premium on redemption can be out of • Securities premium • Divisible profits Capital Redemption Reserve equal to face value of shares redeemed should be created reduced by any fresh issue of share capital Based On Rights To Dividends Based On Redemption Based On Participation In Profits Based On ConvertibilityRead More
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FAQs on PPT - Redemption of Preference Shares - Accounting for CA Foundation
| 1. What is the meaning of redemption of preference shares? |  |
Ans. Redemption of preference shares refers to the process of repaying or buying back the preference shares issued by a company. It is a mechanism through which a company can return the capital invested by the preference shareholders and eliminate their ownership rights in the company.
| 2. How can a company redeem preference shares? | |
Ans. A company can redeem preference shares by following the provisions mentioned in its Articles of Association and the terms of the preference share agreement. The company usually needs to fulfill certain conditions, such as obtaining approval from the shareholders, maintaining sufficient profits, and complying with the statutory requirements. The company can either redeem the preference shares at a specified future date or through a call option, where it can repurchase the shares before the maturity date.
| 3. What are the reasons for redeeming preference shares? | |
Ans. There are several reasons for a company to redeem preference shares. Some of the common reasons include:
- The company wants to reduce its outstanding debt and improve its financial position.
- The company may no longer require the capital raised through preference shares, and redeeming them can help in optimizing its capital structure.
- The company wants to eliminate the fixed dividend obligations associated with preference shares.
- The company may want to regain full control over its ownership and decision-making powers.
| 4. What happens to the preference shareholders after the redemption of their shares? | |
Ans. After the redemption of their shares, the preference shareholders lose their ownership rights in the company. They will no longer be entitled to receive dividends or participate in the decision-making process. However, they will be entitled to receive the redemption amount, which is usually the face value of the preference shares along with any premium specified in the share agreement.
| 5. Are there any legal requirements or restrictions for the redemption of preference shares? | |
Ans. Yes, there are legal requirements and restrictions for the redemption of preference shares. Companies need to comply with the provisions of the Companies Act and the regulations set by the regulatory authorities. Some common requirements include obtaining shareholder approval through a special resolution, maintaining sufficient profits or free reserves, adhering to the prescribed notice period, and notifying the regulatory authorities about the redemption. Failure to comply with these requirements may result in legal implications for the company.
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