If preference shares of Rs. 2,50,000 are to be redeemed and for that 12,500 equity shares of Rs. 10 each are to be issued at 10% discount, then the amount transferred to capital redemption fund will be

The correct answer is A. Rs. 1,75,000.

Explanation:

The amount to be transferred to capital redemption fund is calculated as follows:

= Market value of equity shares issued
– Face value of preference shares redeemed

= 12,500 × 10 × 90/100
– 2,50,000

= Rs. 1,75,000.

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

Option C is incorrect because it is the market value of the equity shares issued.

Option D is incorrect because it is the face value of the preference shares redeemed minus the discount on the equity shares issued.