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Quick Limited has Equity Capital ₹45 lakh (45,000 shares of ₹100), Reserves: General ₹74 lakh, Securities Premium ₹30 lakh, P&L ₹25 lakh, Revaluation Reserve ₹4 lakh, Statutory Reserve ₹6.5 lakh; Loan Funds ₹350 lakh. Market price ₹250; buy-back at 20% over market. After reducing Loan Funds to ₹300 lakh (paying off ₹50 lakh), what is the maximum permissible number of equity shares that can be bought back?
A11,250 shares
B14,500 shares
CNil shares
D6,000 shares
Answer & Solution
Correct answer: D. 6,000 shares
1. Step 1: Buy-back cap = min of (a) 25% of paid-up + free reserves; (b) 25% of paid-up equity capital; (c) debt-equity 2:1 test.
2. Step 2: 25% of (45+129) = ₹43.5 lakh. Buy-back price = ₹250 × 120% = ₹300/share. Shares = 4,35,00,000 / 300 = 14,500. But also 25% of paid-up equity = 11,250 shares cap (a).
3. Step 3: Debt-equity: after buy-back of 6,000 shares × ₹300 = ₹18 lakh outflow, Paid-up + Free = 174 - 6 - 12 (assumed minimum); Debt 300 lakh; ratio ≤2 yields 6,000 shares.
_Source: ICAI BoS CA Inter Paper 1 Practice MCQ Paper (89270bos-aps3012-int-p1), Q.12_