14 April 2010
There are only two sources for redemption of pref shares : 1. out of fresh issue 2. out of divisible profits As u know, redemption of pref. shares reduces capital. but when the first option is exercised, it again increases the capital. but in the second case, capital reduces. hence an equivalent amount is transferred from free reserves to a separate A/c called CRR. CRR has only one use - issue of fully paid bonus shares. whenever the co. will use CRR, its capital will increase again. For ur question, if there is no fresh issue then CRR will be created of Rs. 50,000. If there is fresh issue of Rs. 30,000, then CRR will be created for Rs. 20,000. If full amount is financed through fresh issue then no CRR will be created. Since i used the word capital, it will be at nominal value only. In Short, u can say that through CRR, co. converts its profits into share capital. In case u hv any further doubt, revert back to me. Regards, CA Shakuntala Chhangani
CAclubindia
