Capital Redemption reserve calculation?Watch
Could you please help with this question? It's the first one that has questioned my knowledge of CRR calculation concept.
Kaunus plc was formed on 1 January 2010. On that day the company issued 200 000 ordinary shares of $1.00 each at a premium of $0.25 and issued 150 000 redeemable preference shares of $1.00 at a premium of $0.10. The company also issued $100 000 6% debentures redeemable
on 1 January 2013.
The following information is available:
1 The company has been trading profitably and at 1 January 2012 had retained earnings
of $80 000.
2 The company made a profit of $140 000 for the year ended 31 December 2012.
On 1 January 2013 the following transactions were completed:
The redeemable preference shares were redeemed at a premium of $0.30 each.
A rights issue of 1 new ordinary $1.00 share for every 2 ordinary shares held at a price of
$1.10 per share was fully subscribed.
(i) Calculate the amount to be shown as a capital redemption reserve in the company’s
statement of financial position on 1 January 2013.
Capital redemption reserve $000
Redemption of shares 165
New issue (110)
Transfer to CRR 55 (This is answer)
Could you please explain how it goes like this? I'm asking coz I've so far been doing well (and getting the right answers) with the formula: CRR = Nominal value of shares redeemed - Nominal value of shares issued (if any issued at all).
Any explanation for this weird answer and method?
Thanks for trying to help!!!
While you're waiting for an answer, did you know we have 300,000 study resources that could answer your question in TSR's Learn together section?
We have everything from Teacher Marked Essays to Mindmaps and Quizzes to help you with your work. Take a look around.
If you're stuck on how to get started, try creating some resources. It's free to do and can help breakdown tough topics into manageable chunks. Get creating now.
Not sure what all of this is about? Head here to find out more.
In the start, you issue shares at 165,000 (150,000+15,000) and later on you redeem shares worth 195,000 (150,000+45,000). Now, since you already have 15,000 in your premium account, you can only use 15,000 to pay the premium while redeeming.. (45,000-15,000) which gives you 30,000. This 30,000 out of 195,000 is taken from retained earnings. You're also issuing new shares worth 110,000. therefore, you're redeeming shares worth 165,000 and issuing 110,000. Hence, giving you 55,000 as your capital redemption reserve.
I hope I've cleared your doubts .
If not, do let me know. this question is a lil tricky... May take sometime.
Took me long tbh.
I understand that you're writing A2 Accounts on Wednesday? if yes,
Best of luck for your exam.
I'm giving the same exam, and after seeing this question I got a lil scared
Isn't the rule
Par value of redeemed capital - proceeds of fresh issue = CRR balance?