How do you account for a premium paid to a former share holder when redeeming preference shares? For example, if the shares are issued for £1 each, but redeemed for £11, what happens to the £10 gain? My first thought was Goodwill, but I thought you could only create that on purchase of a business, rather than a partial sale, as in this instance.
If this applies to 1000 shares, redeemable in tranches, then a liability for the whole amount has been created, so my initial thoughts are CR Loan Account DR Goodwill for £10,000, then reduce the Loan balance as the shares are redeemed.
I would be grateful for any help.