Day: August 13, 2022

The Balance Sheet of a company includes the following.

• Ordinary share capital – £600k
• Share Premium account – £200k
• Retained profit – £100k
• Total Equity – £900k
• 10% Debenture stock 2003/2005 – £120k

The company has decided to redeem all its debenture stock at a premium of 10%.

Which of the following is true?

Select ONE answer:

1. The company must create a Capital Redemption Reserve.
2. The debenture stock must have been issued at a premium.
3. The premium may be debited to the Share Premium account.
4. The premium must be debited in the Profit and Loss Account.

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 3

1. Not correct
2. Not correct
3. Correct
4. Not correct

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