Grp 2 accounts

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 July 2017 What will be the entry for
Out of share surrendered, 1000shares of 10 each shall be converted into 12% pref. Shares of 10 each fully paid up
In case of reconstruction

CA Rashmi Gandhi

CA Rashmi Gandhi (Expert)
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27 July 2017 Share Surrender A/c To 12% Pref Share Capital A/c

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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26 July 2024 In a situation where shares are being surrendered and converted into preference shares as part of a company’s reconstruction, the accounting entries need to reflect both the surrender and conversion. Here’s how you can handle the entries:

### **Scenario:**

- **Surrendered Shares:** 1,000 shares of ₹10 each.
- **Conversion:** These shares are being converted into 12% Preference Shares of ₹10 each (fully paid up).

### **Steps and Entries:**

1. **Surrender of Equity Shares:**

The equity shares being surrendered need to be removed from the books. The entry to account for the surrender of these shares is:

```plaintext
Equity Share Capital A/c Dr. ₹10,000
To Equity Shareholders A/c ₹10,000
```

- **Explanation:** The equity share capital is reduced by the nominal value of the surrendered shares.

2. **Conversion into Preference Shares:**

Next, record the issuance of preference shares in exchange for the surrendered equity shares. The value of the new preference shares issued should be the same as the value of the surrendered equity shares.

```plaintext
Preference Share Capital A/c Dr. ₹10,000
To Equity Shareholders A/c ₹10,000
```

- **Explanation:** Preference Share Capital is increased by the amount equal to the nominal value of the preference shares issued. The Equity Shareholders Account is credited to reflect the conversion of equity shares to preference shares.

### **Journal Entries:**

1. **To Record the Surrender of Equity Shares:**

```plaintext
Equity Share Capital A/c Dr. ₹10,000
To Equity Shareholders A/c ₹10,000
```

2. **To Record the Conversion into Preference Shares:**

```plaintext
Preference Share Capital A/c Dr. ₹10,000
To Equity Shareholders A/c ₹10,000
```

### **Notes:**

- Ensure that the **Equity Shareholders A/c** is a placeholder account used to keep track of the shares surrendered and converted. This account is adjusted in both the entries to reflect the change in shareholding.
- This transaction reflects the reclassification of equity into preference shares without affecting the total share capital, as both are of the same nominal value.

If there are any adjustments or revaluation related to the shares or additional considerations (such as premiums or adjustments for past dividends), those should be incorporated into the entries as appropriate.

### **Conclusion:**

These entries reflect the process of surrendering equity shares and converting them into preference shares. The main aspect is ensuring that the total value of the shares remains consistent, and that the accounting reflects the correct change in the type of shares issued.

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