Following is the balance sheet of Fun Ltd. as on 31st March, 2018: Liabilities (₹) Equity shares of ₹10 each fully paid 12,50,000 Revenue reserve 15,00,000 Securities premium 2,50,000 Profit & loss account 1,25,000 1

The buy- back of shares is governed under section 68 of Companies Act, 2013. The following conditions should be met under section 68: According to sub-section 2, shareholders by a special resolution can approve buy-back up to 25% of the total paid-up capital and free reserves of the company. The buy-back shall be twenty-five per cent or less of the aggregate of paid-up capital and free reserves of the company. Further in respect of the buy-back of equity shares in any financial year, the reference to twenty-five per cent in this clause shall be construed with respect to its total paid-up equity capital in that financial year. The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than twice the paid-up capital and its free reserves. Accordingly, A. Share Outstanding test Number of equity share: 12,50,000 / 10 = 1,25,000 25% thereof = 31250 B. Resource Test Paid up capital = ₹12,50,000 Free reserves = Revenue reserve + Profit & loss account = ₹15,00,000 + ₹1,25,000 = ₹16,25,000 Securities premium = ₹2,50,000 Total Free Reserves + Securities Premium = ₹16,25,000 + ₹2,50,000 = ₹18,75,000 Maximum buy-back amount (25% of Paid up capital + Free Reserves + Securities Premium) = 25% of (₹12,50,000 + ₹18,75,000) = 25% of ₹31,25,000 = ₹7,81,250. Buy Back price is ₹20 hence number of shares to be bought back is ₹7,81,250 / ₹20 = 39062.5 shares which comes to total 39062 shares. C. Debt Equity Ratio Secured and unsecured debt = Debentures + Unsecured loan = ₹18,75,000 + ₹10,00,000 = ₹28,75,000 Debt Equity ratio post buy-back should be 2:1 or the equity should be half of the debt, hence desirable minimum capital is ₹28,75,000 / 2 = ₹14,37,500. Shareholder Fund (Paid up capital + Free Reserves + Securities Premium) = ₹12,50,000 + ₹15,00,000 + ₹2,50,000 + ₹1,25,000 = ₹31,25,000 Maximum Amount that can be bought back is ₹31,25,000 - ₹14,37,500 = ₹16,87,500 Hence No of shares in this situation is ₹16,87,500 / ₹20 = 84375 In the present case maximum number of shares that can be bought back shall be the lowest of the three conditions: 1. 25% of total equity shares = 31250 shares 2. 25% of Paid-up capital + Free Reserves + Securities Premium = 39062 shares 3. Debt-Equity Ratio (implies 84375 shares can be bought back) Therefore, the maximum number of shares that can be bought back is 31250 shares at ₹20 each.