A reserve that is set aside for buy-back schemes and redemptions of preference capital (preferred shares capital). It is a non-distributable, statutory reserve that consists of amounts transferred from distributable profits (dividends) for the redemption or purchase of an entity ‘s own shares.
In specific situations, this reserve is created out of the proceeds of issuing new shares. The purchased shares are usually allotted to existing shareholders as fully paid bonus shares.
Once created, this reserve is treated like a share capital (part of an entity’s equity).
The amount transferred to a capital redemption reserve (CRR) is equal to the nominal value (face value) of the shares that will be redeemed.
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