Premium Ltd. is considering buy-back of its shares without using any proceeds of shares or other specified securities. The balance sheet of Premium Ltd. shows the following status as on 31st March, 2018: Asset/Liabilitie

The maximum quantum of buy- back that Premium Ltd. can make as on 1st April, 2018, in pursuance to section 68 of Companies Act, 2013 is 25% of aggregate of paid-up capital and free reserves of the company. Further provided that the reference to twenty-five per cent shall be construed with respect to its total paid-up equity capital in that financial year and the ratio of the aggregate of secured and unsecured debts owed by the company after buy-back should not be more than twice the paid-up capital and its free reserves. Accordingly, in the present case we have, Free Reserves - ₹5,00,000 Securities premium Account - Nil Proceeds of other specified securities- Nil Total Debt i.e. (7,00,000+ 15,00,000) - ₹22,00,000 Sum of paid up Equity capital + free reserves - ₹15,00,000 Hence, the maximum fund available for buy-back (in absence of securities premium account and proceeds of issue of any other specified securities) is ₹5,00,000 Amount that must be maintained as sum total of free reserves and paid up equity capital is half of total debt i.e. half of ₹22,00,000 i.e. ₹11,00,000 Buy back can be made upto 25% of Paid up capital and free reserves i.e. ₹10,00,000 + ₹5,00,000 i.e. ₹15,00,000 * 25% = ₹3,75,000. Further debt equity ratio is Debt: Secured and unsecured debt = ₹15,00,000 + ₹7,00,000 = ₹22,00,000 Capital after Buy Back: Total Capital = ₹10,00,000 - ₹3,75,000 = ₹6,25,000 Free reserve = ₹5,00,000 - ₹3,75,000 = ₹1,25,000 Total Capital + free reserve = ₹6,25,000 + ₹1,25,000 = ₹7,50,000 Debt equity ratio = ₹22,00,000 / ₹7,50,000 = 2.93 The ratio being more than twice the paid-up capital and its free reserves the maximum quantum of ₹3,75,000 is not advisable. As stated above post buyback debt equity ratio must not be more than 2. Accordingly, post buyback total capital and free reserve must be half of debts i.e (₹15,00,000 + ₹7,00,000)/2 = ₹11,00,000. The maximum buyback of equity may be {(₹10,00,000 + ₹5,00,000) - ₹11,00,000}/2 = ₹2,00,000. Therefore, in the given case, maximum possible buyback is of ₹2,00,000 amounting to 20,000 equity shares of ₹10 each.