Case: Jatin Ltd buys back 1,00,000 equity shares of ₹10 each at ₹15 per share. To part-finance the buyback, it issues 10% preference shares of ₹6,00,000 at par; the balance is met out of general reserve. Following the usual ICAI approach, the proceeds of the preference issue are applied first towards the nominal value of the shares bought back. The amount to be transferred to the Capital Redemption Reserve is:

Correct answer: B) ₹4,00,000

Explanation

Nominal value of shares bought back = 1,00,000 x 10 = 10,00,000. Under section 69, a transfer to CRR is required only to the extent the nominal value is met out of free reserves or securities premium; the part met out of the proceeds of a fresh issue of a different kind of shares (6,00,000 of preference shares) needs no transfer. CRR = 10,00,000 - 6,00,000 = ₹4,00,000, transferred from general reserve. The premium of 5,00,000 (1,00,000 x ₹5) is also borne by general reserve but is not transferred to CRR.