Please Help: BUY BACK OF SHARES
Posted Date : 05-Jan-2012 , 01:53:03 pm | Posted By: Deepanshu Goyal
Category :
Accounts | Answers :
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Comments :
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WHY WE ARE CREATING CRR(CAPITAL REDEMPTION RESERVE) AFTER BUY BACK OF SHARE WITH THE NOMINAL AMOUNT OF SHARE BUY BACKED ? |
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Answers:
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 Answer by: Rohit Agarwal |
| Capital Redemption Reserve (CRR) is created for redemption of Equity and Preference Shares by transferring an
amount equal to the amount apportioned from the profit for the year computed under Indian GAAP.
Under the Indian Companies Act, 1956 such reserve has a restricted usage and is to be created out of the profits
for the year in financial statement prepared under Indian GAAP.
Capital Redemption reserve can be utilised for paying unissued shares of the company to be issued to members of the company as fully paid shares.
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| Answer by: Mrattunjay |
| statutory provision
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| Answer by: Ketan Samdani |
| The simple logic to create CRR is to maintain the confidence among the lenders & crediotrs. In case of buy back the owners are withdrawing their own capital from the company. In such situation it is necessary to maintain the confidence among lenders & crediotrs and as such CRR is created so capital remains intact. Also any lender or creditor will ask a simple question that "when owners themselves are drawing their capital in that case why do we give our money to company to do business?
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| Answer by: Rambabu Senkarasetti |
| To protect users of financial statements
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| Answer by: Rambabu Senkarasetti |
| To protect users of financial statements
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| Comments |
| Posted By : Ketan Samdani |
01-Mar-2012, 12:56:16 |
| With the above logic the statutory provision of creation of CRR was enacted. Hope I have cleared your doubts. |
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