Multiple choice

To redeem 15% Pref. Shares of Rs. 1, 00, 000 at 5% premium, Rs. 10, 000, 12%. Debentures of Rs. 100 each are issued at a discount of 10%. The amount to be transferred to Capital Redemption Reserve is

  1. nil

  2. Rs. 90, 000

  3. Rs. 91, 000

  4. Rs. 1, 00, 000
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A Correct answer
Explanation

The proceeds of fresh issue of debentures is not to be utilised for redemption of preference shares. An amount equal to face value of preference shares is to be transferred to the Capital Redemption Reserves if shares are redeemed out of divisible profits.Thus, in the given case, amount to be transferred to CRR would be Rs 1,00,000 since the proceeds of debentures cannot be utilised for the redemption of preference shares.

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