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If a company has Paid-up Equity Capital ₹100 lakh, Free Reserves ₹200 lakh, the absolute maximum buy-back permissible (without considering debt-equity test) is:
A₹75 lakh
B₹50 lakh
C₹25 lakh
D₹100 lakh
Answer & Solution
Correct answer: A. ₹75 lakh
1. Step 1: Resource test cap = 25% of (Paid-up Capital + Free Reserves) = 25% × ₹300 lakh = ₹75 lakh.
2. Step 2: Share outstanding test cap = 25% of paid-up equity = ₹25 lakh; but this is a SHARE COUNT cap, not price cap.
3. Step 3: Total buy-back outflow capped at ₹75 lakh resource-wise. Hence (C).
_Source: ICAI BoS CA Inter Paper 1, Ch 12 "Buy-Back of Securities"_