222

$show=home

Welcome to Accounting Education

The Free Online University with 3400+ Accounting contents as study material which can watch, read and learn anyone, anywhere.

Start your studies

Latest Contents$type=three$count=6$author=hide$comment=hide$label=hide$s=hide$show=home$date=hide

$show=home

Why Accounting Education Important


Free
Simple
Have Quality Study Material
Taught by Expert

Connect Vinod Kumar (Educator)

Why Accounting Education Volunteer


Free training
It's educational
It's fun
It helps others

Become Volunteer Teacher

Journal Entries of Redemption of Preference Shares

For recording the redemption of preference shares in the books of company who issued the shares, we see whether these preference shares are fully paid or not. Only fully paid up shares can be redeemed. In redemption, we repay the amount of preference shareholders. Following are the main journal entries which are passed for redemption of preference shares.


1. When preference shares are due on the maturity date with its premium amount. At that time, we will pass following journal entry. 

Redeemable preference share capital account Dr. ( With face value)
Premium on Redemption Account Dr. ( with the premium to be paid on redemption )
Preference Shareholders Account or Preference Share Redemption Account Credit 

Understanding of this Journal Entry :

Main aim of debiting redeemable preference share capital account is to reduce this capital from business. When any capital is reduced from business it will be debited when any capital is increased, it will be debited. In previous post, I told that capital is the liability of business. So, we have applied journal entry rule of liability. Every decrease in the liability will be debited and every increase in the liability will be credited in the journal entry. Like preference share capital, premium on redemption is also our liability and we are reducing it by debiting it.

 We are crediting preference shareholders account because we have transfer all capital liability to the personal liability of shareholders. Because our personal liability to pay the amount of redeemable preference shareholder is increased due to decrease the same capital from our books, we have credited preference shareholders account. By this entry company can get the benefit to pay each shareholders personally. After passing above entry preference shareholders account or preference share redemption account will show in the liability side before payment to same shareholders.

 One of main reason of credit the preference of shareholders account instead credit of cash or bank account is to get time for getting cash from different resources. Repayment to preference share capital may be the big project of any company because if we pay them without getting fund from any big resource, our working capital and cash flow will be affected. So, after passing this entry, whole management starts to search the fund for repaying to preference shareholders.

Example of this Journal Entry  

On 1st January, 2012, The company decided to redeem 10000 7% redeemable preference shares at $ 13 which had issued at $ 10 each were fully paid up. Pass the journal entry of transferring same capital and premium to shareholders account.

7% Redeemable Preference Share capital account Dr. 1,00,000
Premium on Redemption Account Dr. 30000
7% Redeemable Preference Shareholders' Account Cr. 1,30,000
 2. When Fund is managed for Repayment to Preference Shareholders.

There is not any magic that we pay the money the shareholders within one second. Management make the resources for repayment to preference shareholders. It may be the reserve of old profits of company or company may issue new equity shares or taken of new loan or selling his assets  for repayment the preference shareholders.

(i) If company uses his old profit reserves for repayment to preference shareholders. It means, company has saved money out of his profit for this day. We take this money by passing following journal entry.

Profit and loss account Dr. or General Reserve Account Dr.
Capital Redemption Reserve Account Cr.

(ii) If company issues new equity shares for redemption of preference shareholders.

Bank Account Dr.
Equity Share Capital Account Cr. 

(iii) If company sells its assets on the loss for getting fund for repayment to preference shareholders.

Bank Account Dr
Profit and Loss Account Dr. ( Loss on sales of assets )
Particular Asset Account Cr. 

(iv) If company gets new loan for repayment to preference shareholders. 

Bank Account Dr.
Loan Account Cr. 

 3. When Company Pays  to Redeemable Preference Shareholders.


Preference Shareholders Account  or Preference Redemption Account Dr.
Bank Account Cr.
 4. When Company converts preference share capital into equity share capital. 

At that time, we will not pass above entries, we will pass only following entry.

Preference Share Capital Account Dr.
New Equity Share Capital Account Cr. 

5. Premium on Redemption Account is Closed through Stock Premium Account or General Reserve 

We can fulfill payable amount of premium on redemption account through stock premium account or our general reserve account.

  Example of this Journal Entries

On 1st January, 2012, The company decided to redeem 10000 7% redeemable preference shares at $ 13 which had issued at $ 10 each were fully paid up. To provide redemption, the company decided to issue 5000 equity shares of $ 10 each at $ 14  each. The profit and loss account showing the credit balance of $ 1,00,000.

This is the part of first example. So, please see the journal entry of first example (above).

(i) Money from issue of equity share capital 

Bank Account Dr. 70,000
Equity Share Capital Dr. 50,000
Share premium Account Dr. 20,000

Total payable amount to preference shareholders = 130,000

Less money from equity shareholders + share premium = - 70,000
-------------------------------------------------------------------------
balance $ 60000
=================================================

(ii)  Rest 60,000 will be managed from credit balance of profit and loss account. Transferring the Profit and loss account's Credit balance to Capital Redemption Reserve account 

Profit and loss account Dr. 60,000
Capital Redemption Reserve Account Cr. 50,000
Premium on Redemption Account Cr. 10,000

(iii) For paying the preference shareholders

Bank Account Dr. 130,000
Preference Shareholders Account Cr. 130,000

Related : Forfeiture of Shares 

COMMENTS

: 1
  1. how to calculate number of equity shares to be issued

    ReplyDelete
In comment, you can give your feedback, reviews, ideas for improving content or ask question relating to written content.

$hide=page


Name

access,2,account,87,accountant,92,Accounting,679,accounting definitions,99,accounting ebook,3,Accounting education,85,accounting procedure,2,accounting process outsourcing,2,Accounting Software,54,advance,3,advertising,6,africa,7,Amalgamation,6,amendments,16,announcements,61,Annuity,2,assets,51,audit,46,auditing,41,Australia,2,B.Com.,22,balance sheet,81,bank,111,Bank reconciliation,12,banking,33,basic accounting,110,BBA,1,benefits,13,best,50,bill,12,black money,3,blog,12,bloggers,7,book keeping,4,bookkeeping,2,Branch Accounting - full tutorial,8,budget,35,Budget variance,13,business,65,businessman,9,CA,29,calculator,4,canada,3,capital,72,capital budgeting,27,career,20,cash,40,cash book,8,cash flow statement,8,Chiense,1,children,13,china,6,class,3,coaching,2,coins,2,college,6,commerce,10,commerce students,7,company,36,computer,9,computer accounting,1,conference,4,Contact vinod kumar,1,Control Your Spending,27,corporate accounting,69,cost,159,cost accounting,194,cost center,8,cost centre,1,CPA,2,credit,18,credit card,11,cs,10,currency,35,data,11,Debit and credit,16,debit cards,1,debt,62,debtor,21,degree,6,depletion,2,depreciation,38,Diwali Messages,12,documents,4,dollar,5,domain,3,Downloads,3,Dubai,1,e-accounting,17,earning,17,education,246,Education Loans,6,email,15,employee,4,EPF,2,ERP,7,euromoney,1,examination,7,excel,17,excise duty,6,expenses,65,facebook,7,factor of loan,1,fans,2,feature,32,fifo,5,FII,4,fiji,1,finacle,1,finance,822,Finance Journal Entries,4,Financial,134,financial accounting,144,fire insurance,3,flickr,2,flow,4,forensic,4,forex,21,formula,8,france,1,fraud,6,free,2,fun,34,function,1,fund,48,GAAP,36,GDP,1,gdr,5,germany,1,gold,7,goodwill,4,goodwill accounting,3,google,34,google apps,3,google apps,1,google base,1,google buzz,1,google calendar,1,Google docs,38,google finance,3,google fusion tables,1,google talk,5,govt.,5,GST,33,guide,85,health,6,Hindi,2,Hindi Language,3,history,3,holding company,3,How to treat FBT in Tally 9,1,HRA,3,ICAI,11,ICAWI,3,ICICI Bank,1,IFRS,10,income,17,income statement,16,Income Tax,7,India,57,indian railway,1,Indonesia,1,inflation,4,inflation accounting,3,infographics,8,information,7,inspiration,175,insurance,14,insurance accounting,2,Intangible,3,interest,26,international,7,Internet,41,Introduction of Tally 9,1,inventory,41,investment,135,investment in Shares,6,invoice,3,IT,1,Japan,1,Job costing,4,journal entries,136,Journal Entries eBook Help,4,Kalculate,1,keyboard,3,kuwait,2,laptop,2,law,4,LBT,1,learning,36,lease,5,lecture,11,ledger,15,leducation,1,Leverage Analysis,7,liabilities,16,lifo,3,linkedin,1,loan,74,logical point,1,loss,5,loss of profit,1,M.Com.,5,m.phil,2,malaysia,3,management accounting,129,manual accounting,4,manufacturing account,1,market,11,marketing,3,mastercard,2,material,13,MBA,14,MCA,1,media,4,migration,2,mobile,9,money,61,ms word,3,ms. excel,14,multi currency in tally 9,1,Multicurrency Accounting,3,mutual fund,30,national security,1,new and sacrifice ratio,1,new york times,1,new zealand,1,news,1,NGO,5,nonprofit-accounting,6,North Georgia Mountains,1,Notification,1,NPV,17,NSE,1,odbc,2,office,10,oman,1,online application,2,online accounting,11,Online Accounting Course,4,otcei,1,pakistan,3,parents,3,Partnership,1,pay pal,3,pdf,4,Personal Finance,6,pie chart,1,pie chart of income,2,pnb,5,podcast,1,ppf,1,presentation,10,price,7,privacy policy,2,prof. vinod kumar,13,profit,24,profit and loss account,12,project management,11,provision,13,purchase,9,puzzles,2,quickbooks,2,Quote,22,quotes,42,quotes of svtuition,1,rating agency,2,ratio analysis,34,RBI,7,readers,13,real estate,13,rectification of errors,11,remote control,2,reports,10,reserves,8,responsibility accounting,4,retirement,2,revenue,3,Revenue reserves,2,review,7,risk,11,rupees,9,salary,5,sale,12,saudi arabia,1,saving,19,sbi,9,scholarship,2,school,1,SEBI,13,security,30,service tax,23,share,20,share trading,15,Shares,16,shri lanka,3,singapore,2,sms,6,social accounting,7,society,5,solution,214,South Africa,1,stock,24,stock exchange,22,structure,6,student,39,students,69,study,21,subsidiary company,2,svtuition,13,swiss bank,2,tally,99,tally 9,8,Tally 7.2,8,Tally 9,42,Tally.ERP 9,59,tanzania,2,tax,94,Tax Accounting,30,TDS,15,teacher,62,teaching,112,technology,33,test,40,testimonial,15,testimonials,15,thailand,1,tips,60,trading,5,trading on equity,2,transaction,7,trend,12,trial balance,13,truthfulness,1,tuition,3,twitter,10,UAE,5,UGC - NET Commerce,13,UK,11,United Arab Emirates,1,university,9,usa,25,valuation,8,VAT,22,Video,35,Voucher and vouching,4,Wealth,8,wikipedia,25,working capital,29,youtube,14,
ltr
item
Accounting Education: Journal Entries of Redemption of Preference Shares
Journal Entries of Redemption of Preference Shares
http://3.bp.blogspot.com/-C9k8RFql1Kg/S97NGmR9iJI/AAAAAAAAFJk/CqyPndIuIng/s1600/light.PNG
http://3.bp.blogspot.com/-C9k8RFql1Kg/S97NGmR9iJI/AAAAAAAAFJk/CqyPndIuIng/s72-c/light.PNG
Accounting Education
http://www.svtuition.org/2012/08/journal-entries-of-redemption-of.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2012/08/journal-entries-of-redemption-of.html
true
2410664366776677676
UTF-8
Loaded All Posts Not found any posts VIEW ALL Reply Cancel reply Delete By Home PAGES Contents View All RELATED CONTENTS FOR YOUR LEARNING Topic ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy