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TOPIC 2a. REDEMPTION OF SHARES

TOPIC 2a. REDEMPTION OF SHARES . Hjh Azmi Aminuddin. Usual Transactions in Share Redemption Questions. 1. Share redemption Temporary reduction in Capital (nominal value) Dr. Redeemable Preference Share Capital Cr. Redemption of Redeemable Preference Shares

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TOPIC 2a. REDEMPTION OF SHARES

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  1. TOPIC 2a. REDEMPTION OF SHARES Hjh Azmi Aminuddin

  2. Usual Transactions in Share Redemption Questions • 1. Share redemption Temporary reduction in Capital (nominal value) Dr. Redeemable Preference Share Capital Cr. Redemption of Redeemable Preference Shares To set aside the premium when redeeming at a premium Dr. Premium on Redemption Cr. Redemption of Redeemable Preference Shares Dr. Share Premium / P&L Appropriation Cr. Premium on Redemption Payment to Preference Shareholders Dr. Redemption of Redeemable Preference Shares Cr. Bank

  3. 2. Issue of debenture Normally payable in full on application ParPremiumDiscount Dr Bank Bank Bank Cr.Appn Appn Appn Dr Appn Appn Appn Deb. Discount Cr. x% Debenture x% Debenture x% Debenture Deb. Premium

  4. 3. Disposal or sales of fixed assets / investments - normal transactions

  5. 4. Maintenance of capital structure: Issue of share (public issue) - normal transaction Issue of rights Dr. Bank Cr. Rights Issue Dr. Rights Issue Cr. Ordinary Share Capital Share Premium Capitalisation of profit (by creating CRR) Dr. Profit and Loss / General reserve Cr. Capital Redemption Reserve (CRR)

  6. 5. Bonus issue Dr. CRR / Share Premium /General Reserve / P&L Cr. Bonus Issue Dr. Bonus Issue Cr. Ordinary Share Capital

  7. TOPIC 2b. SHARE BUY BACK

  8. The Treasury Stock Method (to reissue in the future) Buy back shares Dr. Treasury Shares Cr. Bank Reissue at a premium price Dr. Bank Cr. Share Premium Treasury Shares Reissue at a discount price Dr. Bank Share Premium Cr. Treasury Shares

  9. The Share Retirement Method (cancel the shares) Buy back shares Dr. POS Cr. Bank Cancel shares & transfer to CRR Dr. OSC Cr. POS Dr. P& L Cr. CRR Finance POS Dr. Reserves Cr. POS

  10. TOPIC 2c. SINKING FUND (Theory only)

  11. 1. Annual entries for appropriation from P & L , etc. • Annual appropriation of P&L • Investment of the annual appropriation • Receipt of return on investment and reinvestment of the return

  12. 2. Sale of Investment • Receipt of investment sale • Record profit/loss on sale

  13. 3. Partial redemption by purchase of own debentures in open market • Payment of redemption • Record profit/loss on redemption • Amount transfer to GR

  14. 4. Final redemption of all outstanding debentures • Payment of redemption • Record profit/loss on redemption • Balancing amount transfer to GR

  15. Payment of Debenture Interest • Payment of interest • Write off interest in P&L

  16. TOPIC 2d. Redemption of debenture (equal annual nstallments)

  17. Dr Debentures - with nominal value of debentures redeemed Cr. Debentures Redemption Dr Premium Deb Redemption - with premium payable on redemption Cr Debenture Redemption Dr Debenture Redemption - with discount payable on redemption Cr Debenture Discount Dr Debenture Redemption - with payment to debenture holders on redemption Cr. Bank Dr P& L- creation of DRR Cr. Debenture Redemption Reserve

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