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Issue and redemption of shares

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ABC Ltd, a public company intends to redeem 100000 $1 redeemable shares at $1.5each. the shares were originally issued at a premium of $0.3 per share. To finance the redemption, 80000 new $1 shares are issued at par at the same time. ABC Ltd also plans to reissue the 100,000 shares which have just been redeemed to the public at $2 per share.

The extract of the balance sheet showing the shareholders' equity of ABC Ltd before the redemption of shares is as follows:

Ordinary share capital of $1 each $3000000
Share premium $500000
Revaluation reserve $75000
General reserve $35000
Retained earnings $1230000
Total: $4840000

Required:

(a) Comment on ABC Ltd's proposal on share transactions and advise whether the redemption scheme can be carried out under the Companies Ordinance

(b) Prepare the journal entries where appropriate

(c) Redraft a statement of shareholders' equity of ABC Ltd on completion of all the above transactions.

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Solution Summary

The issues and redemption of shares are determined. The response addresses the queries posted in 250 words with references.

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The response addresses the queries posted in 250 words with references.
//This paper discussed provisions of redemption of redeemable shares in Companies Ordinance and other requirements for the redemption. There is also discussion about reissuing redeemed shares. This paper also shows impact of redemption on share premium, general reserve and retained earnings. ...

Solution provided by:
Ashish Sharma, MBA (IP)
Education
  • MBA (IP), International Center for Internationa Business
  • BBA, University of Rajasthan
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