In the last blog, we looked at the concept of share premium; in today's blog let’s understand the concept of Capital redemption reserve.
Capital Redemption Reserve:- Generally, the amount required for the redemption of redeemable preference shares comes from the proceeds of a fresh share issue. The other way this account gets amount transferred is when the company transfers an amount equal to the par value of the shares redeemed to the capital redemption reserve. When a company buys back its own equity shares, it must transfer an amount equal to the nominal value of the shares to the capital redemption reserve account.
The account is similar to share capital in that it cannot be returned to the shareholders. However, the company can issue fully paid bonus shares out of the balance in Capital Redemption Reserves.
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