Directions: Choose the correct option for the given question.

In which of the following purposes 'Capital Redemption Reserve Account' is used?

Capital Redemption Reserve is created when a company redeems shares out of capital (to maintain capital intact). The primary and most important use of this reserve is to declare bonus issues (fully paid bonus shares) to shareholders. While it can also be used to write off fictitious assets like preliminary expenses or underwriting commission in some cases, the main statutory purpose is bonus issue declaration. It cannot be directly transferred to general reserve - it must first be utilized for its intended purpose.