Page 61 - Ebook Financial Accounting 3
P. 61

b)  Redemption out of profit

                    ➢  Where the redeemable preference shares are redeemed out of profit, an amount equal
                        to  the  amount  of  shares  redeemed  must  be  transferred  out  of  the  profits  into

                        contributed  capital.  This  process  has  been  effect  to  ‘freezing’  past  profits  and
                        converting them to become part of paid-up capital.



               Example 3.5
                         Statement of Financial Position of Sapphire 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                                         48,000,000

                   Retained profits                                                   50,000,000


                   Non-current liability
                   20,000,000 6% redeemable preference shares                         22,000,000



                   Current liabilities                                                15,000,000
                                                                                     135,000,000



               Sapphire  Bhd  issued  20  million  6  percent  redeemable  preference  shares  which  were
               redeemable at a premium of 10 percent on 31 December 2019. All the redeemable preference

               shares were to be redeemed out of profits.


               Required:

               Prepare  the  journal  entries  to  record  the  above  transactions  and  the  statement  of  financial
               position immediately after the redemption.








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