Redemption of preference shares

Redemption of preference shares

Redemption of preference shares


Preference shares: priority in payment of dividend and capital at the time of liquidation.

Redemption means repayment of capital

Provisions of companies Act (section 55 ) for redemption of preference shares:

Only fully paid up preference shares can be redeemed

Redemption is possible out of free reserve or new issue of shares.

If redemption is made with premium, premium on redemption of preference shares will be written off against free reserves or security premium.

If redemption is made from free reserves, amount equivalent to face value of redemption will be transferred to Capital redemption reserve.

CRR can be used for fully paid up bonus shares only.

  • New issue is considered as below if reserve is short.

If bank is short while considering new issue only bank will be considered.

Journal entries:

Preference share capital a/c Dr.

To preference share holder

Preference share holder a/c Dr.

To Bank


Profit and loss account Dr.

General Reserve Account Dr.


Bank a/c Dr.

To Equity share capital

To preference share capital

While solving above question always prepare following chart:

Redemption of Preference Shares | India | Accounting










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