If preference share capital of Rs. 5,00,000 is to be redeemed, and 25,000 equity shares of Rs. 10 each have been issued at a discount of 10%. For this purpose, the amount to be transferred to Capital Redemption Reserve will be:

[amp_mcq option1=”Rs. 3,50,000″ option2=”Rs. 2,50,000″ option3=”Rs. 2,75,000″ option4=”Rs. 2,25,000″ correct=”option3″]

The correct answer is: C. Rs. 2,75,000

Explanation:

The amount to be transferred to Capital Redemption Reserve is the face value of the preference shares redeemed, less the amount received from the issue of equity shares at a discount.

In this case, the face value of the preference shares redeemed is Rs. 5,00,000. The amount received from the issue of equity shares at a discount is 25,000 x 10 x 90/100 = Rs. 2,25,000.

Therefore, the amount to be transferred to Capital Redemption Reserve is Rs. 5,00,000 – Rs. 2,25,000 = Rs. 2,75,000.

Option A is incorrect because it is the face value of the preference shares redeemed.

Option B is incorrect because it is the amount received from the issue of equity shares at a discount.

Option D is incorrect because it is the difference between the face value of the preference shares redeemed and the amount received from the issue of equity shares at a discount.