Where there is a redemption of preference shares 'out of profit':
A) The redemption is recorded in the appropriations section of the profit and loss account.
B) The redemption is recorded as an expense.
C) The redemption is recorded as a liability and is amortised over a maximum of five years.
D) The redemption is not recorded in the current period.

Question

Quizplus · Accepted Answer

When preference shares are redeemed 'out of profit', it means that the company is using its earned profits to finance the redemption. This action is reflected in the appropriations section of the profit and loss account, indicating that a portion of the profit is being set aside to redeem the preference shares. This is not treated as an expense, liability, or deferred action but as a direct application of profits.

Where There Is a Redemption of Preference Shares 'Out of Profit