Redemption of Preference shares Complete Chapter | CA Intermediate Accounting | Chandan Poddar

In This Video We Will Discuss CA Intermediate Accounting "Redemption of Preference shares" all Concepts, Problems and Examples for CA Inter have been discussed by Chandan Poddar Sir for CA Intermediate Grooming Education.

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Time Stamp:
0:00 Intro
0:07 Redemption of Preference Shares
1:50 Source of Redemption
6:06 Condition Related from Redemption of Preference Shares
23:20 Capital Redemption Reserve
42:52 Journal

ISSUE AND REDEMPTION OF PREFERENCE SHARES
⚫ The company cannot issue irredeemable preference shares or redeemable preference shares with a redemption period beyond 20 years.
⚫ Section 55 (1) states that no company limited by shares shall issue any preference shares which are irredeemable.
⚫ Section 55(2) further states that a company limited by shares may, if so authorised by its articles, issue preference shares which are liable to be redeemed within a period not exceeding 20 years from the date of their issue subject to such conditions as may be prescribed.

Exceptions
Issue and redemption of preference shares by company in infrastructure projects
A company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for a period exceeding 20 years but not exceeding 30 years,
(However redemption subject to minimum 10% of such preference shares per year from the twenty first year onward or earlier on proportionate basis, at the option of the preference shareholders)
The term “infrastructure projects” means the infrastructure projects specified in Schedule VI.
Other conditions attached
Proviso to Section 55(2) states that
Preference Shares shall be redeemed
a) Out of divisible profits (Profits available for dividend) or
b) Out of proceeds of fresh issue of shares

Preference Shares shall be redeemed only if they are fully paid.
Premium payable on redemption of preference shares shall be provided for (write off) :-
a) Security Premium Reserve or
b) Profits of the company

When Preference shares are proposed to be redeemed out of the profits of the company, a sum equal to the nominal amount of the shares to be redeemed, should be transferred to Capital Redemption Reserve Account.

Note: – The Capital Redemption Reserve shall be treated as the paid up share capital of the company for all purposes and can only be utilized for bonus issue of shares.

Section 55 (3) states that
If a company is not in a position to redeem any preference shares or to pay dividend, if any, on such shares in accordance with the terms of issue, it may, with the consent of the holders of 3/4th in value of such preference shares and with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares. [Section 55(3)]

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