Da

incured)
10,
buy-back expenses
(Being
ares
Problem and Solutions
follows:
the Balance Sheet of Blue Chip Co. Ltd. was as
Problem 1:31st March, 2019, Amount
Particulars

Liabilities:
I. Equity and
1. Shareholders' Funds'
(a) Share Capital
24.00.000
2.40,000 Equity Shares @7 10 each fully paid up
b) Reserves and Surplus:
36,00.00o
General Reserve
Securities Premium Reserve 12.00,000
2.
2. Non-Current Liabilities
(a) Long-term Borowings (14% Debentures) 50,00,000
3 Current Liabilities:
(a) Trade Payables (Sundry Creditors) 22.00.000
Total 144.00.000
 For SEM V{HOHBURS
Corporate Accounting
A Welcome Approach to
158
II. Assets:
1. Non-Current Assets:
(a) Fixed Assets
Current Assets:
72,000
2.
(a) Inventories (Stock-in-trade) 20,00,0
(b) Trade Receivables (Sundry
Debtors) 16,00,0
(c) Cash and Cash Equivalents
(Cash and Bank) 36.000
Total 1,44.00.00
back 40,000 Equity Shares at
a premium of ? 30 per sharo
are.
The company intends to buy Sta
whether the company can do so and pass Journal entries. C.U.B.Come.2014(H
Solution: In the Books of Blue Chip Ltd.
Journal Dr. Cr
Date Particulars L.E Amount Amoun
2019
March 31 Equity Share Capital Ac Dr. 4,00,000
Premium on Buy-Back A/c Dr 12,00,000
To Equity Shareholders A/c 16,00,00
(Being amount of 7 4,0,000 Equity Share Capital bought back
and Premium payable 30 each for 40,000 Equity Shares
transferred to Equity Shareholders Alc as per Board's Resolution
No. ........ dated.........)
31 Equity Shareholders A/c Dr. 16,00,000
To Bank Ac 16,00,00
(Being amount repaid on buy-back of 40,000 Equity Shares @ 40
each including premium)
31 Securities Premium Reserve Ac Dr. 12,00,000
To Premium on Buy-Back Ac 12,00,0
(Being premium payable on buy-back of 40,000 Equity Shares
adjusted to Securities Premium Reserve A/c)
31 General Reserve A/c Dr. 4,00,000
To Capital Redemption Reserve A/c 4,00,0
(Being Capital Redemption Reserve A/c created out of General
Reserve for the nominal value of Equity Shares bought back)
Working
Computation of whether 40,000 Equity Shares to be Bought-Back by
as
Provisions of Companies Act
Blue Chip. Co. Ld
oftna
(i) 1st Condition The maximum amount of Equity Share
Total of Paid-up Share Capital plus Free Reserves
Capital to be bought-back =
including Securities Premium Reserve z5ro =
+36,00,000 + 12,00,000)
25/100 x 7 72,00,000
=
7 Here the Buy
=
18,00,000.
Price
7(10+30) =
7 40. So No. of Eq. Shares
to be bought back
D Equ
7 18,00,000/7 40
-
*= =
Shares.
(ii) 2nd Condition: The post buy-back Debts Equity Ratio cannot exceed 2:1.
-
Debt (50,00,000 +22,00,000)
Now, Equity (24,00,000-4,00,000)+ ? (36,00,000 4,00,000)
72,00,000
=
=1.38: 1, i.e., less than 2:1. S h a r e
As all the two conditions have fulfilled by the Company it can buy-back 40,000 Equity
easily 40,000
y-back easily