Multiple choice

A Company issued 20,000 6% Redeemable Preference Shares of Rs. 100 each (fully paid-up). These shares are redeemable @ 10% Premium on 31st Dec 2010. A provision of Rs. 40,000 is made every year out of divisible profits for redemption of these shares. Which of the following is wrongly passed?

  1. Profit and Loss Appropriation A/c Rs. 40,000 To Capital Reserve A/c Rs. 40,000

  2. 6% Redeemable Preference Shares A/c 20,00,000 Premium on Redemption of Shares A/c Rs. 2,00,000 To 6% Redeemable Preference Shareholders A/c 22,00,000

  3. Profit and Loss Appropriation A/c Rs. 2,00,000 To Premium on Redemption of Shares A/c Rs. 2,00,000

  4. 6% Redeemable Preference Shareholders A/c 22,00,000 To Bank Rs, 22,00,000
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A Correct answer
Explanation

 The correct entry is: Profit and Loss Appropriation A/c Rs. 40,000 To Capital Redemption Reserve A/c Rs. 40,000

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