## Capital Redemption Reserve (CRR)

### What is CRR?

A statutory reserve created to protect creditors when a company reduces its equity base through buy back of shares or redemption of preference shares. It substitutes the capital that has left the company.

### When Must CRR be Created?

Event	CRR Amount
Buy back of equity shares	Face value of shares bought back
Redemption of preference shares	Face value of shares redeemed

### Funding CRR (Priority Order)

1. Free reserves: General Reserve, Revenue Reserve, P&L Surplus

2. If free reserves are insufficient → debit P&L A/c for the shortfall

3. Securities Premium cannot fund CRR (it can fund the premium paid but not CRR)

### CRR in the Balance Sheet

CRR is classified under Reserves & Surplus as a capital reserve. It is treated as paid-up capital for most purposes.

### Permitted Use of CRR

Only use allowed: Issue of fully paid-up bonus shares to existing shareholders

### Prohibited Uses of CRR

Cannot be distributed as dividend
Cannot be used to write off losses
Cannot be used to buy back further shares

### CRR Build-up Logic (Notes to Accounts)

```

Capital Redemption Reserve

Opening balance: XXX

Add: Transfer from Revenue Reserve

(for Pref Redemption) XXX

Add: Transfer from Revenue Reserve

(for Equity Buy Back) XXX

Less: Used for Bonus Shares (XXX)

Closing balance: XXX

```

Worked example

### Example 1

Example – CRR in combined problem (Pages 9–10)

Transactions: Preference shares redeemed ₹75L at par; Equity shares bought back face value ₹5L.

Funding analysis:

CRR for Pref redemption = ₹75L → Revenue Reserve Dr 75
CRR for Equity buy back = ₹5L → Revenue Reserve Dr 5
Total CRR created = ₹80L

```

Revenue Reserve A/c Dr 75 [for preference redemption]

To CRR A/c 75

Revenue Reserve A/c Dr 5 [for equity buy back]

To CRR A/c 5

```

Notes to Accounts:

Reserve	Opening	Additions	Closing
Revenue Reserve	260	–75 –5	180
CRR	0	+75 +5	80

⚠️ Common exam mistakes

Including Securities Premium in the CRR funding (only free reserves qualify)
Creating CRR only once for a combined transaction instead of separately for each event
Confusing Capital Reserve (arising from capital profits like gain on debenture cancellation) with Capital Redemption Reserve – they are different reserves

Bare-Act text Section 69(1) · Companies Act, 2013 · click to expand

Where a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the Capital Redemption Reserve Account and details of such transfer shall be disclosed in the balance sheet.

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Capital Redemption Reserve (CRR) – Creation and Utilisation

Worked example

⚠️ Common exam mistakes