Question 7 At a meeting of the board of directors of Barby Limited it was decided: 1. 2. 3. 4. 5. To redeem the redeemable preference shares of the company on 30 September 2006. To achieve this by a fresh issue of the maximum number of ordinary shares permissible without the necessity of calling a meeting of shareholders. That the issue price for the proposed issue would be R1,20 per share. That the redemption should be made in such a way that would have the minimum effect on distributable reserves. That after the redemption and the issue have been made, a proposal be put to the shareholders in a general meeting that increased the authorised share capital by an amount sufficient to allow a capitalisation issue of one ordinary share for every two ordinary shares already held. This is also to be arranged so that there is a minimum effect on distributable reserves. The following information has been extracted from the accounting records of Barby Limited at 31 August 2006. 80 000 ordinary shares of no par value-stated capital 25 000 12% redeemable preference shares of R2 each Share premium account Surplus on revaluation of land Retained earnings Notes 1. R72 500 50 000 2500 50 000 65 000 The redeemable preference shares are redeemable at a premium of 20c per share at any time at the option of the company. 2. The authorised share capital of the company is: 3. 100 000 ordinary shares of no par value; and 25 000 redeemable preference shares of R2 each. The directors have the power to issue unissued shares.