Ad Free CAclubindia and Daily Updates on your Mobile. Subscribe Now!

use of CRR

Gargi Ranade (CS) (619 Points)

09 June 2009

Hi dear all,

Please tell me

What is use of CRR created after redemption of preference shares?

Can I use that CRR for writing off losses or for writing off preliminary or pre-operative expenses?

thanks and regards

Reply
Follow
Share

2 Replies

G R Gotra (nil) (40 Points)
Replied 10 June 2009

Originally posted by :Gargi Ranade

When the company redeems its preference shares out of accumulated profit, it is necessary to create the capital redemption reserve account. The basic purpose of creation of this account is to protect the interest of sundry creditors and maintain the working capital.

The main purpose of creating CRR is to protect the interest of sundry creditors and to maintain the working capital. Redemption of preference shares involves repayment of capital before paying creditors of the company. It may affect the interest of creditors. In addition to that the working capital of the company will be depleted as a result of outflow of cash due to redemption. That is why, the amount is capitalized by creating the capital redemption reserve account.

The capital redemption reserve is used only to issue the fully paid bonus shares to the existing equity shareholders

Upgrade to CAclubindia Pro. Subscribe Now!

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 12 June 2009

Dear Gargi,

CRR can not be utilised for writing off priliminary expenses or losses. It is created to ensure that the capital of the company is not dilluted.

May be utilised for issuing fully paid Bonus shares.

It is quite clear from the wordings of Section 80(5) as under:-

"The Capital Redemption Reserve (Account) may, notwithstanding anything in this section, be applied by the company, in paying up unissued shares of the company to be issued to the members of the company as fully paid bonus shares."