sameera (student) (61 Points)
17 January 2011dear all,
can any one know rationale behind the CRR(capital redemption reserve) required to be created when a company bought back securities out of free reserves
is there any specific accounting rationality involved behind that?
i request any of you to please clarify me
thanks in advance
Sameera
CA Sandeep Kumar
(Audit Assistant)
(804 Points)
Replied 17 January 2011
since the capital gets reduced, it is to fill in the capital lost by way of buy back, etc
sameera
(student)
(61 Points)
Replied 17 January 2011
thanks sunny.
if that is the case, then why not CRR is made mandatory only when the buyback is funded out of free reserves.
the wording indicates that CRR should be made when BB is funded out of free reserves but it is silent when BB is funded by other ways like securities premmium proceeds etc
any clue in that point of view?
please clarify
CA Sandeep Kumar
(Audit Assistant)
(804 Points)
Replied 18 January 2011
good question,.. actually speaking, such transfer to CRR is required in case BB is out of security premium account as share capital gets reduced irrespective of source of buy back .. but law does not provide for the same..
There cannot be any logic, but i think it has been left in law due to inadvertance..
CAclubindia
