Page 59 - Ebook Financial Accounting 3
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3.4.2 Redemption of Redeemable Preference Shares
a) Redemption through a fresh issue of shares
➢ If the company adopt this option, then it has to make a fresh issue of shares (ordinary
or preference) equal to the amount of shares redeemed in order that the issue capital
will remain the same as before the redemption took place.
➢ A company with insufficient liquid funds may prefer to adopt this form of redemption.
Example 3.4:
Statement of Financial Position of Diamond Bhd as at 31 December 2019
RM
Non-current assets 70,000,000
Current assets (except cash at bank) 15,000,000
Cash at bank 50,000,000
135,000,000
Issued share capital
40,000,000 ordinary shares 44,000,000
Retained profits 50,000,000
Non-current liability
20,000,000 6% redeemable preference shares 24,000,000
Current liabilities 17,000,000
135,000,000
Diamond Bhd issued 20 million 6 percent redeemable preference shares which were
redeemable at a premium of 20 percent on 31 December 2019. Diamond Bhd also issued 20
million ordinary shares at RM1.20 per share.
Required:
Prepare the journal entries to record the above transactions and the statement of financial
position immediately after the redemption.
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