TOPIC 2a. REDEMPTION OF SHARES

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TOPIC 2a. REDEMPTION OF SHARES

• Hjh Azmi Aminuddin

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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 / PL Appropriation
• Cr. Premium on Redemption
• Payment to Preference Shareholders
• Dr. Redemption of Redeemable Preference Shares
• Cr. Bank

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

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

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• 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)

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• 5. Bonus issue
• Dr. CRR / Share Premium /General Reserve / PL
• Cr. Bonus Issue
• Dr. Bonus Issue
• Cr. Ordinary Share Capital

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TOPIC 2b. SHARE BUY BACK
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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

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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

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TOPIC 2c. SINKING FUND

• (Theory only)

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1. Annual entries for appropriation from P L ,
etc.

• Annual appropriation of PL
• Investment of the annual appropriation
• Receipt of return on investment and reinvestment
  of the return

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2. Sale of Investment

• Receipt of investment sale
• Record profit/loss on sale

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3. Partial redemption by purchase of own
debentures in open market

• Payment of redemption
• Record profit/loss on redemption
• Amount transfer to GR

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4. Final redemption of all outstanding debentures

• Payment of redemption
• Record profit/loss on redemption
• Balancing amount transfer to GR

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Payment of Debenture Interest

• Payment of interest
• Write off interest in PL

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