Question

In the year 2002, the company has got approval

to issue 5,500, 10% preference shares at OMR 10 each. In the same year, the management decided

to issue 2,000 redeemable preference shares at 11% premium. These shares are redeemable at par

value in February, 2019 All these preference shares were fully subscribed and paid.

In 2011, the company wants to expand its capacity by modernizing its production units. Therefore,

the management decided to issue another 3,500 redeemable preference shares at par value. These

shares will be redeemed in April, 2019at a premium of 6.5%. All these preference shares were

fully subscribed and paid.

A) In February, 2019the company has redeemed its 2,000 redeemable preference shares at

par. For this purpose, the company issued 1,200 equity shares of OMR 100 each at a

premium of 11% which was fully paid up. The remaining money has been paid out of its

profit. Pass necessary journal entries for this redemption

B) In April2019 the company has redeemed its 3,500 redeemable preference shares at a

premium of 6.5%. For this purpose, the company issued 675 equity shares of OMR 100

each at a discount of 10% which was fully paid up. The remaining money has been paid

out of its profit. Pass necessary journal entries for this redemption.

Answer 1

A. Following entries shall be recorded-

Cash/Bank A/c--- Dr. 133,200

To Equity share capital A/c 120,000

To Securities Premium A/c 13,200

(Being shares issued at Premium)

Redeemable Preference Shares A/c---- Dr. 200,000

T0 Cash/ Bank A/c 200,000

(Shares redeeemed at Par. Assumed 100 is par value)

B.  

Cash/Bank A/c--- Dr. 60,750

Securities Premium A/c 6,750

To Equity share capital A/c 67,500

(Being shares issued at discount)

10% Preference Shares A/c---- Dr. 35,000

Security Premium A/c--- Dr 2,275

T0 Cash/ Bank A/c 37.275

(Shares 3500 redeeemed at 6.5% premium. )