Revision Notes – Fundamentals of Accounting

Chapter 9. Company Accounts

Unit 3: Redemption of Preference Shares

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Chapter 9. Company AccountsUnit 3: Redemption of Preference Shares

• As per Companies Act, 1956, no company can redeem preference shares

unless they are fully paid.

• Whenever fully paid preference shares are redeemed, then the face value of

such shares should be replaced either by issue of new equity shares or by

transfer of an amount to capital redemption reserve or by both in part. It is also to

be noted that when shares are issued at a discount, then replacement is

regarded as equal to net proceeds only.

• Redeemable preference shares are to be redeemed within maximum 20 years

and no company is allowed to issue irredeemable preference shares or

redeemable preference shares which are payable after 20 years.

Revision Notes - Fundamentals of Accounting CPT Success

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Chapter 9. Company AccountsUnit 3: Redemption of Preference Shares

• As per section 78 of Companies Act, Securities premium account may be

applied by the company for:

o In paying up un-issued shares of the company to be issued to members of the

company as fully paid bonus shares

o In writing off the preliminary expenses of the company

o In writing off the expenses of, or the commission paid or discount allowed on,

any issue of shares or debentures of the company; or

o In providing for the premium payable on the redemption of any redeemable

preference shares or of any debentures of the company

• Capital redemption reserve and Securities premium account can be used for

bonus issue purposes

Revision Notes - Fundamentals of Accounting CPT Success

CPT Success