Redemption of Preference Shares – Journal Entries

## Redemption of Preference Shares

### Concept

When a company redeems (repays) preference shareholders, it reduces preference share capital. Governed by Section 55, Companies Act 2013.

### CRR Obligation on Redemption

Same as buy back: CRR must be created equal to the face value of preference shares redeemed, funded from free reserves.

### Step-by-Step Journal Entries

Step 1 – Record redemption

```

Preference Share Capital A/c Dr [Face Value]

Premium on Redemption A/c Dr [Premium, if redeemed above par]

To Preference Shareholders A/c [Redemption Amount]

```

Step 2 – Make payment

```

Preference Shareholders A/c Dr [Redemption Amount]

To Bank A/c [Redemption Amount]

```

Step 3 – Write off premium from Securities Premium

```

Securities Premium A/c Dr [Premium on Redemption]

To Premium on Redemption A/c [Premium on Redemption]

```

Step 4 – Create CRR

```

Revenue Reserve A/c Dr [Face Value redeemed]

To Capital Redemption Reserve A/c [Face Value redeemed]

```

### Key Parallel with Equity Buy Back