Purpose Ltd. resolves to buy back 4 lakhs of its fully paid equity shares of 10 each at 22 per share. This buyback is in compliance with the…

Journal Entries in the books of Purpose Ltd. Particulars ₹ 1. Bank A/c Dr. 10,00,000 To 11% Preference share application & allotment A/c 10,00,000 (Being receipt of application money on preference shares) 2. 11% Preference share application & allotment A/c Dr. 10,00,000 To 11% Preference share capital A/c 10,00,000 (Being allotment of 1 lakh preference shares) 3. General reserve A/c Dr. 30,00,000 To Capital redemption reserve A/c 30,00,000 (Being creation of capital redemption reserve for buy back of shares) 4. Equity share capital A/c Dr. 40,00,000 Premium payable on buyback A/c Dr. 48,00,000 To Equity shareholders/Equity shares buy back A/c 88,00,000 (Amount payable to equity shareholder on buy back) 5. Equity shareholders/ Equity shares buy back A/c Dr. 88,00,000 To Bank A/c 88,00,000 (Being payment made for buy back of shares) 6. Securities Premium A/c Dr. 16,00,000 General reserve A/c 32,00,000 To Premium payable on buyback A/c 48,00,000 (Being premium on buyback charged from securities premium and general reserve) Working Notes: 1. Calculation of amount used from General Reserve Account Particulars ₹ Amount paid for buy back of shares (4,00,000 shares x 22) 88,00,000 Less: Proceeds from issue of Preference Shares (1,00,000 shares x 10) (10,00,000) Less: Utilization of Securities Premium Account (16,00,000) Balance used from General Reserve Account 62,00,000 * Used under Section 68 for buy back 32,00,000 Used under Section 69 for transfer to CRR (W.N 2) 30,00,000 62,00,000 2. Amount to be transferred to Capital Redemption Reserve account Particulars ₹ Nominal value of shares bought back (4,00,000 shares x 10) 40,00,000 Less: Nominal value of Preference Shares issued for such buy back (1,00,000 shares x 10) (10,00,000) Amount transferred to Capital Redemption Reserve Account 30,00,000