Methods of Redemption of Preference Shares


The refinement of preference shares can be done as follows-

(1) Redemption of profits – In this method, the preference shares are redeemed from the benefits available to the dividend. Profit available for dividend refers to the profit that can be used for payment of dividend, usually the following balance can be used for payment of dividend

(i) Profit & Loss Account. (ii) General Reserve.

(iii) Reserve Fund, (iv) Insurance Fund.

(v) Dividend Equalization Fund. (vi) Employees Compensation Fund.

(vii) Employee’s Accident Fund, so the payment (redemption) on redemption of preference shares from the above funds should be transferred to Capital Redemption Reserve alc. capital redemption

(2) Redemption by issue of shares – In this method, by issuing new equity shares or preference shares, the preference shares are redeemed from the amount received. The issue of new shares can be done at par or interest and the amount received from the issue can be used for redemption as follows:

(i) in the case of shares issued at par – the amount of the face value of the shares. (ii) in the case of shares issued at interest, only the amount of the face value of the shares, according to the Companies Act, the amount of interest cannot be used for capital payment, but if the shares are being redeemed at premium, then the interest can be used as interest. payment can be made.

(3) Redemption of partly profits and partly by issue of new shares – In this method, preference shares are liquidated partly from the profits of the company and partly from the amount received from the issue of new equity shares or preference shares. goes.

(4) Redemption by conversion – In this method, the company, as authorized by its Articles, converts the redemption of redeemable preference shares into new equity shares. In this Preference Share Capital Account is debited and Equity Share Capital Account is credited.

Previous articleEntrepreneurial class Rise of Entrepreneurial class in India
Next articleWhat do you understand by debenture?

LEAVE A REPLY

Please enter your comment!
Please enter your name here