1)As per Section 80(1)(a) A company is permitted to carry out redemption from only two sources. They are:
(a) Profits of the company which would otherwise be available for dividend.
(b) Proceeds of fresh issue of shares made for the purpose of redemption.
2)Where shares are redeemed from out of profits otherwise available for dividend, a sum equal to the nominal value of the shares redeemed must be transferred ‘Capital Redemption Reserve Account’.
3)As per Section 205(1) dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year.
The query is as follows:
a)An existing company is having balances in the books as follows:
Equity share capital 5 crores
Preference share capital 5 crores
Accumulated losses 10 crores
b)In the current year the company has earned profit after tax Rs.5 crores.
c)Can it redeem preference shares from the current year profits and also transfer same amount to capital redemption reserve-If it is possible accumulated losses will show Rs.10 crores under Misc expdr and Rs.5 Crores will be shown under reserves as capital redemption reserve.
CAclubindia
