Capital Redemption Reserve Account is available for
A. redemption of redeemable preference shares
B. redemption of redeemable debentures
C. reorganisation of share capital
D. issue of bonus shares
Answer: Option D
Solution (By Examveda Team)
Capital Redemption Reserve (CRR) is created when a company redeems its redeemable preference shares out of profits or fresh issue of shares.The main purpose of creating CRR is to maintain the company’s capital intact, since redemption reduces share capital.
However, the amount transferred to CRR cannot be used again for redemption of preference shares or debentures.
It is also not used for reorganisation of share capital.
The CRR can only be utilized for a specific purpose, which is the issue of fully paid bonus shares to shareholders.
Therefore, CRR is available for issuing bonus shares.
Hence, Option D is correct.
This Question Belongs to Commerce >> Accounting
D. Issue of bonus shares
Explanation:
The Capital Redemption Reserve (CRR) is created when a company redeems its own shares (especially redeemable preference shares) out of distributable profits.
This reserve is not freely available for general use.
It can be used only for specific purposes.
Permitted use of CRR:
It can be used only for issuing fully paid bonus shares to shareholders.
Why other options are incorrect:
A. Redemption of preference shares → CRR is created after redemption, not used for it.
B. Redemption of debentures → Not allowed.
C. Reorganisation of share capital → Not a valid use of CRR.