18 November 2013
while we are redeeming the preference shares at premium, the premium amount is contributed by the share premium A/c in reserves and surplus...for face value we have two options....either we can get money from fresh issue of shares or from accumulated profits. In case of accumulated profit, we need to transfer the amount equal to face value to capital redemption reserve na sir ?? Why we are transferring that ??What's the logic behind this ?? thanks in advance guys !!
18 November 2013
Good question... The logic behind creation of CRR is to maintain the capital intact bcoz due to redemption the capital of the company certainly be reduced,so creating CRR will maintain the capital if redemption is done out of profit.. If its done thru fresh issue of shares then creation of CRR is not required as capital of the company will be maintain by the issue of fresh shares...
secondly, its required to protect the creditors interest...
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