Delta Ltd redeems fully paid preference shares of nominal value ₹8,00,000 at par. It uses ₹3,00,000 raised from a fresh issue of equity shares at par made for the purpose, and pays the rest out of profits available for dividend. What amount must be transferred to the Capital Redemption Reserve under section 55?

Correct answer: B) ₹5,00,000

Explanation

Under section 55(2), when preference shares are redeemed out of profits, a sum equal to the nominal amount of the shares redeemed out of profits must be transferred to the Capital Redemption Reserve. Shares redeemed from a fresh issue need no transfer. Nominal value redeemed out of profits = ₹8,00,000 - ₹3,00,000 = ₹5,00,000.