Extract of ledger balances of Kalpana Ltd. as on 31st March, 2015 includes the following: Particulars ₹ 2,000, 12% Preference shares of ₹100 each, fully paid 2,00,000 Surplus 40,000 Securities premium 12,000 Under the te

Calculation of Fresh Issue: Let 'a' be the number of equity shares to be issued. Face value of preference shares to be redeemed = 2,000 shares × ₹100 = ₹2,00,000 Premium on redemption = 10% of ₹2,00,000 = ₹20,000 Total amount required for redemption (Face Value + Premium) = ₹2,00,000 + ₹20,000 = ₹2,20,000 Sources for redemption: From Surplus (for face value) = ₹40,000 From Securities Premium (existing, for premium on redemption) = ₹12,000 From Fresh Issue (Face Value) = 'a' shares × ₹10 = ₹10a From Fresh Issue (Securities Premium) = 'a' shares × ₹10 × 5% = ₹0.5a Equating total required with total sources: ₹2,00,000 (Face Value) + ₹20,000 (Premium) = ₹40,000 (Surplus) + ₹12,000 (Securities Premium) + ₹10a (Fresh Issue FV) + ₹0.5a (Fresh Issue Premium) ₹2,20,000 = ₹52,000 + ₹10.5a ₹10.5a = ₹2,20,000 - ₹52,000 ₹10.5a = ₹1,68,000 a = ₹1,68,000 / 10.5 = 16,000 shares Number of shares to be issued = 16,000 Journal Entries in the books of Kalpana Ltd. Particulars Dr. (₹) Cr. (₹) 12% Preference Share Capital A/c 2,00,000 Premium on Redemption A/c 20,000 To Preference Shareholders A/c 2,20,000 (Being premium redemption of 2,000 preference shares at premium of 10%) Bank A/c 1,68,000 To Equity Share Capital A/c 1,60,000 To Securities Premium A/c 8,000 (Being issue of 16,000 shares of ₹10 each at a premium of 10% for the purpose of redemption of preference shares) Securities Premium A/c 20,000 To Premium on Redemption A/c 20,000 (Being utilization of security premium balance for writing off premium on redemption) Profit and Loss A/c (or Surplus A/c) 40,000 To Capital Redemption Reserve A/c 40,000 (Being transfer of amount to CRR for redemption of preference shares) Preference Shareholder A/c 2,20,000 To Bank A/c 2,20,000 (Being payment made to preference shareholders)