Page 48 - IC26 LIFE INSURANCE FINANCE

(3) Redemption of preference shares by combination of fresh issue and capitalisation of undistributed
profits: A company can redeem the preference shares partly from the proceeds from new issue and
partly out of profits.

(i) Amount to be transferred to Capital Redemption Reserve
Face value of shares redeemed
Less: Proceeds from new issue

(ii) Proceeds to be collected from new issue
Face value of Shares redeemed
Less: Profits available for distribution as dividend

Redemption of partly called-up partly paid up preference shares : One of the condition of redemption
is that only fully paid up preference shares can be redeemed by a company.

Redemption of fully called but partly paid up preference shares : There are two conditions
(i) If amount of the unpaid calls received before the redemption starts: this entry will be
passed :
Bank A/c Dr
To Calls in arrears A/c

After receipt of calls in arrears, the share become fully paid up paid up and then company can proceed
with redemption in the normal course.

(ii) If amount of the unpaid calls is not received before the redemption starts: In this case, those
shares will be forfeited.

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