Full Text Transcript
5
I R
NTERNAL ECONSTRUCTION
BASIC CONCEPTS
(cid:190) Reconstruction is a process by which affairs of a company are reorganized by
revaluation of assets, reassessment of liabilities and by writing off the losses already
suffered by reducing the paid up value of shares and/or varying the rights attached to
different classes of shares.
(cid:190) Reconstruction account is a new account opened to transfer the sacrifice made by the
shareholders for that part of capital which is not represented by lost assets.
(cid:190) Reconstruction account is utilized for writing-off fictitious and intangible assets, writing
down over-valued fixed assets, recording new liability etc.
(cid:190) If some credit balance remains in the reconstruction account, the same should be
transferred to the capital reserve account.
(cid:190) Methods of Internal reconstruction :
• Alteration of share capital :
(cid:131) Sub-divide or consolidate shares into smaller or higher Denomination
(cid:131) Conversion of share into stock or vice-versa
• Variation of shareholders’ rights :
(cid:131) Only the specific rights are changed. There is no change in the amount of
capital.
• Reduction of share capital
• Compromise, arrangements etc.
• Surrender of Shares.
Question 1
Green Limited had decided to reconstruct the Balance Sheet since it has accumulated huge
losses. The following is the summarized Balance Sheet of the Company on 31.3.2012 before
reconstruction :
© The Institute of Chartered Accountants of India
Internal Reconstruction
Balance Sheet of Green Limited as at 31.3.2012
Liabilities Rs. Assets Rs.
Share Capital: Fixed Assets:
Authorised: Goodwill 20,00,000
1,50,000 Equity Shares of Rs. 50 each 75,00,000 Building 10,00,000
Subscribed and Paid up Capital: Plant 10,00,000
50,000 Equity Shares of Rs. 50 each 25,00,000 Computers 25,00,000
1,00,000 Equity Shares of Rs. 50 Investments Nil
each,
Rs. 40 per share paid up 40,00,000 Current Assets Nil
Secured Loans: Profit and Loss A/c-Loss 20,00,000
12% First Debentures 5,00,000
12% Second Debentures 10,00,000
Current Liabilities:
Sundry Creditors 5,00,000
85,00,000 85,00,000
The following is the interest of Mr. X and Mr. Y in Green Limited:
Mr. X Mr. Y
Rs. Rs.
12% First Debentures 3,00,000 2,00,000
12% Second Debentures 7,00,000 3,00,000
Sundry Creditors 2,00,000 1,00,000
12,00,000 6,00,000
Fully paid up Rs. 50 shares 3,00,000 2,00,000
Parly paid up shares (Rs. 40 paid up) 5,00,000 5,00,000
The following Scheme of Reconstruction is approved by all parties interested and also by the
Court:
(a) Uncalled capital is to be called up in full and such shares and the other fully paid up
shares be converted into equity shares of Rs. 20 each.
(b) Mr. X is to cancel Rs. 7,00,000 of his total debt (other than share amount) and to pay
Rs. 2 lakhs to the company and to receive new 14% First Debentures for the balance
amount.
© The Institute of Chartered Accountants of India
5.2
Accounting
(c) Mr. Y is to cancel Rs. 3,00,000 of his total debt (other than equity shares) and to accept
new 14% First Debentures for the balance.
(d) The amount thus rendered available by the scheme shall be utilised in writing off of
Goodwill, Profit and Loss A/c Loss and the balance to write off the value of computers.
You are required to draw the Journal Entries to record the same and also show the Balance Sheet
of the reconstructed company. (November, 2000)
Answer
Green Limited
Journal Entries
Dr. Cr.
Rs. Rs.
Bank Account Dr. 10,00,000
To Equity Share Capital Account 10,00,000
(Balance of Rs. 10 per share on 1,00,000 equity shares
called up as per reconstruction scheme)
Equity Share Capital Account (Rs. 50) Dr. 75,00,000
To Equity Share Capital Account (Rs. 20) 30,00,000
To Capital Reduction Account 45,00,000
(Reduction of equity shares of Rs. 50 each to shares of Rs. 20
each as per reconstruction scheme)
12% First Debentures Account Dr. 3,00,000
12% Second Debentures Account Dr. 7,00,000
Sundry Creditors Account Dr. 2,00,000
To X 12,00,000
(The total amount due to X, transferred to his account)
Bank Account Dr. 2,00,000
To X 2,00,000
(The amount paid by X under the reconstruction scheme)
12% First Debentures Account Dr. 2,00,000
12% Second Debentures Account Dr. 3,00,000
© The Institute of Chartered Accountants of India
5.3
Internal Reconstruction
Sundry Creditors Account Dr. 1,00,000
To Y 6,00,000
(The total amount due to Y, transferred to his account)
X Dr. 14,00,000
To 14% First Debentures Account 7,00,000
To Capital Reduction Account 7,00,000
(The cancellation of Rs. 7,00,000 out of total debt of
Mr. X and issue of 14% first debentures for the balance
amount as per reconstruction scheme)
Capital Reduction Account Dr. 55,00,000
To Goodwill Account 20,00,000
To Profit and Loss Account 20,00,000
To Computers Account 15,00,000
(The balance amount of capital reduction account utilised in
writing off goodwill, profit and loss account, and computers—
Working Note)
Balance Sheet of Green Limited (and reduced)
as on 31st March, 2012
Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
A Share capital 1 30,00,000
2 Non-current liabilities
A Long-term borrowings 2 10,00,000
3 Current liabilities
A Trade Payables 2,00,000
Total 42,00,000
Assets
1 Non-current assets
A Fixed assets
© The Institute of Chartered Accountants of India
5.4
Accounting
Tangible assets 3 30,00,000
2 Current assets
Cash and cash equivalents 12,00,000
Total 42,00,000
Notes to accounts
Rs.
1. Share Capital
Equity share capital
Issued, subscribed and paid up
150,000 equity shares of Rs. 20 each 30,00,000
Total 30,00,000
2. Long-term borrowings
Secured
14% First Debentures 10,00,000
Total 10,00,000
3. Tangible assets
Building 10,00,000
Plant 10,00,000
Computers 10,00,000
Total 30,00,000
Working Note:
Capital Reduction Account
Rs. Rs.
To Goodwill A/c 20,00,000 By Equity Share Capital A/c 45,00,000
To P & L A/c 20,00,000 By X 7,00,000
To Computers (Bal. Fig.) 15,00,000 By Y 3,00,000
55,00,000 55,00,000
© The Institute of Chartered Accountants of India
5.5
Internal Reconstruction
Question 2
The following is the Balance sheet of Weak Ltd. as on 31.3.2012:
Liabilities Rs. Assets Rs.
Equity shares of Rs.100 each 1,00,00,000 Fixed assets 1,25,00,000
12% cumulative preference 50,00,000 Investments (Market value 10,00,000
shares of Rs.100 each Rs.9,50,000)
10% debentures of Rs.100 each 40,00,000 Current assets 1,00,00,000
Sundry creditors 50,00,000 P & L A/c 4,00,000
Provision for taxation 1,00,000 Preliminary expenses 2,00,000
2,41,00,000 2,41,00,000
The following scheme of reorganization is sanctioned:
(i) All the existing equity shares are reduced to Rs.40 each.
(ii) All preference shares are reduced to Rs.60 each.
(iii) The rate of interest on debentures is increased to 12%. The debenture holders surrender
their existing debentures of Rs.100 each and exchange the same for fresh debentures of
Rs.70 each for every debenture held by them.
(iv) One of the creditors of the company to whom the company owes Rs.20,00,000 decides to
forgo 40% of his claim. He is allotted 30,000 equity shares of Rs.40 each in full satisfaction of
his claim.
(v) Fixed assets are to be written down by 30%.
(vi) Current assets are to be revalued at Rs.45,00,000.
(vii) The taxation liability of the company is settled at Rs.1,50,000.
(viii) Investments to be brought to their market value.
(ix) It is decided to write off the fictitious assets.
Pass Journal entries and show the Balance sheet of the company after giving effect to the
above. (May, 2007)
Answer
Journal Entries in the books of Weak Ltd.
Rs. Rs.
(i) Equity share capital (Rs.100) A/c Dr. 1,00,00,000
To Equity Share Capital (Rs.40) A/c 40,00,000
© The Institute of Chartered Accountants of India
5.6
Accounting
To Capital Reduction A/c 60,00,000
(Being conversion of equity share capital of Rs.100 each into
Rs.40 each as per reconstruction scheme)
(ii) 12% Cumulative Preference Share capital (Rs.100) A/c Dr. 50,00,000
To 12% Cumulative Preference Share Capital (Rs.60) A/c 30,00,000
To Capital Reduction A/c 20,00,000
(Being conversion of 12% cumulative preference share
capital of Rs.100 each into Rs.60 each as per reconstruction
scheme)
(iii) 10% Debentures A/c Dr. 40,00,000
To 12% Debentures A/c 28,00,000
To Capital Reduction A/c 12,00,000
(Being 12% debentures issued to 10% debenture-holders for
70% of their claims. The balance transferred to capital
reduction account as per reconstruction scheme)
(iv) Sundry Creditors A/c Dr. 20,00,000
To Equity Share Capital A/c 12,00,000
To Capital Reduction A/c 8,00,000
(Being a creditor of Rs.20,00,000 agreed to surrender his
claim by 40% and was allotted 30,000 equity shares of Rs.40
each in full settlement of his dues as per reconstruction
scheme)
(v) Provision for Taxation A/c Dr. 1,00,000
Capital Reduction A/c Dr. 50,000
To Liability for Taxation A/c 1,50,000
(Being conversion of the provision for taxation into liability for
taxation for settlement of the amount due)
(vi) Capital Reduction A/c Dr. 99,50,000
To P & L A/c 4,00,000
To Preliminary Expenses A/c 2,00,000
To Fixed Assets A/c 37,50,000
To Current Assets A/c 55,00,000
To Investments A/c 50,000
© The Institute of Chartered Accountants of India
5.7
Internal Reconstruction
To Capital Reserve A/c 50,000
(Being amount of Capital Reduction utilized in writing off P &
L A/c (Dr.) Balance, Preliminary Expenses, Fixed Assets,
Current Assets, Investments and the Balance transferred to
Capital Reserve)
(vii) Liability for Taxation A/c Dr. 1,50,000
To Current Assets (Bank A/c) 1,50,000
(Being the payment of tax liability)
Balance Sheet of Weak Ltd. (and reduced) as on 31.3.2012
Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 82,00,000
b Reserves and Surplus 2 50,000
2 Non-current liabilities
a Long-term borrowings 3 28,00,000
3 Current liabilities
a Trade Payables 30,00,000
Total 1,40,50,000
Assets
1 Non-current assets
a Fixed assets
Tangible assets 4 87,50,000
b Investments 5 9,50,000
2 Current assets 6 43,50,000
Total 1,40,50,000
Notes to accounts
Rs.
1. Share Capital
Equity share capital
Issued, subscribed and paid up
© The Institute of Chartered Accountants of India
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Accounting
150,000 equity shares of Rs. 20 each 52,00,000
Preference share capital
Issued, subscribed and paid up
12% Cumulative Preference shares of Rs. 60 each 30,00,000
Total 82,00,000
2. Reserves and Surplus
Capital Reserve 50,000
3. Long-term borrowings
Secured
12% Debentures 28,00,000
4. Tangible assets
Fixed Assets 1,25,00,000
Adjustment under scheme of reconstruction (37,50,000) 87,50,000
5. Investments 10,00,000
Adjustment under scheme of reconstruction (50,000) 9,50,000
6. Current assets 45,00,000
Adjustment under scheme of reconstruction (1,50,000) 43,50,000
Working Note:
Capital Reduction Account
Rs. Rs.
To Liability for taxation A/c 50,000 By Equity share capital 60,00,000
To P & L A/c 4,00,000 By 12% Cumulative preference 20,00,000
share capital
To Preliminary expenses 2,00,000 By 10% Debentures 12,00,000
To Fixed assets 37,50,000 By Sundry creditors 8,00,000
© The Institute of Chartered Accountants of India
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Internal Reconstruction
To Current assets 55,00,000
To Investment 50,000
To Capital Reserve 50,000
(balancing figure) _________ _________
1,00,00,000 1,00,00,000
Question 3
The following is the summarized Balance Sheet of X Ltd. as on 31st March, 2012:
Liabilities Rs. Assets Rs.
12,000, 10% Preference shares of Goodwill 90,000
Rs.100 each 12,00,000
24,000, Equity shares of Rs.100 each 24,00,000 Land & building 12,00,000
10% Debentures 6,00,000 Plant & machinery 18,00,000
Bank overdraft 6,00,000 Stock 2,60,000
Sundry Creditors 3,00,000 Debtors 2,80,000
Cash 30,000
Profit & Loss Account 14,00,000
Preliminary expenses 40,000
51,00,000 51,00,000
On the above date, the company adopted the following scheme of reconstruction:
(i) The equity shares are to be reduced to shares of Rs.40 each fully paid and the
preference shares to be reduced to fully paid shares of Rs.75 each.
(ii) The debenture holders took over stock and debtors in full satisfaction of their claims.
(iii) The Land and Building to be appreciated by 30% and Plant and machinery to be
depreciated by 30%.
(iv) The fictitious and intangible assets are to be eliminated.
(v) Expenses of reconstruction amounted to Rs.5,000.
Give journal entries incorporating the above scheme of reconstruction and prepare the
reconstructed Balance Sheet. (November, 2009)
© The Institute of Chartered Accountants of India
5.10
Accounting
Answer
In the books of X Ltd.
Journal Entries
31st March, 2012 Rs. Rs.
(i) Equity Share Capital A/c (Rs. 100) Dr. 24,00,000
To Equity Share Capital A/c (Rs. 40) 9,60,000
To Capital Reduction A/c 14,40,000
(Being 24,000 equity shares of Rs.100 each reduced to Rs.40
each fully paid up)
(ii) 10% Preference Share Capital A/c (Rs.100) Dr. 12,00,000
To 10% Preference Share Capital A/c (Rs.75) 9,00,000
To Capital Reduction A/c 3,00,000
(Being 12,000 Preference shares of Rs.100 each reduced to
Rs.75 each fully paid up)
(iii) 10% Debentures A/c Dr. 6,00,000
To Stock A/c 2,60,000
To Debtors A/c 2,80,000
To Capital Reduction A/c 60,000
(Being Debenture holders given stock and debtors in full
settlement of their claims)
(iv) Land & Building A/c Dr. 3,60,000
To Capital Reduction A/c 3,60,000
(Being Land & Building appreciated by 30%)
(v) Reconstruction expenses A/c Dr. 5,000
To Cash A/c 5,000
(Being expenses of reconstruction paid)
(vi) Capital Reduction A/c Dr. 21,60,000
To Goodwill A/c 90,000
To Profit and Loss A/c 14,00,000
To Plant & Machinery A/c 5,40,000
To Preliminary expenses A/c 40,000
To Reconstruction expenses A/c 5,000
To Capital Reserve A/c (Bal. Fig.) 85,000
(Being various losses written off, assets written down and balance
in Capital Reduction A/c transferred to Capital Reserve A/c)
© The Institute of Chartered Accountants of India
5.11
Internal Reconstruction
Balance Sheet (And Reduced) of X Ltd.
as at 31st March, 2012
Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 18,60,000
b Reserves and Surplus 2 85,000
2 Current liabilities
a Trade Payables 3,00,000
b Short term borrowings 6,00,000
Total 28,45,000
Assets
1 Non-current assets
a Fixed assets
Tangible assets 28,20,000
2 Current assets
Cash and cash equivalents (30,000 -5,000) 25,000
Total 28,45,000
Notes to accounts
Rs.
1. Share Capital
Equity share capital
24,000 equity shares of Rs. 40 each fully paid up 9,60,000
Preference share capital
12,000, 10% Preference shares of Rs. 75 each fully
9,00,000
paid up
Total 18,60,000
2. Reserves and Surplus
Capital Reserve 85,000
3. Tangible assets
Land and Building 15,60,000
Plant and Machinery 12,60,000
Total 28,20,000
© The Institute of Chartered Accountants of India
5.12
Accounting
Question 4
The following scheme of reconstruction has been approved for Win Limited:
(i) The shareholders to receive in lieu of their present holding at 1,00,000 shares of Rs.10
each, the following:
(a) New fully paid Rs.10 Equity shares equal to 3/5th of their holding.
(b) 10% Preference shares fully paid to the extent of 1/5th of the above new equity
shares.
(c) Rs.40,000, 8% Debentures.
(ii) An issue of Rs.1 lakh 10% first debentures was made and allotted, payment for the same
being received in cash forthwith.
(iii) Goodwill which stood at Rs.1,40,000 was completely written off.
(iv) Plant and machinery which stood at Rs.2,00,000 was written down to Rs.1,50,000.
(v) Freehold property which stood at Rs.1,50,000 was written down by Rs.50,000.
You are required to draw up the necessary Journal entries in the Books of Win Limited for the
above reconstruction. Suitable narrations to Journal entries should form part of your answer.
(May, 2010)
Answer
Journal Entries
Rs. Rs.
Equity Share Capital (old) A/c Dr. 10,00,000
To Equity Share Capital (Rs.10 ) A/c 6,00,000
To 10% Preference Share Capital A/c 1,20,000
To 8% Debentures A/c 40,000
To Reconstruction A/c 2,40,000
(Being new equity shares, 10% Preference Shares,
8% Debentures issued and the balance transferred
to Reconstruction account as per the Scheme)
Bank A/c Dr. 1,00,000
To 10% First Debentures Application & 1,00,000
Allotment A/c
(Being amount received on issue of 10% First
Debentures for application and allotment Account)
© The Institute of Chartered Accountants of India
5.13
Internal Reconstruction
10% First Debentures Application and allotment A/c Dr. 1,00,000
To 10% First Debentures Account 1,00,000
(Being allotment of 10% first Debentures)
Reconstruction A/c Dr. 2,40,000
To Goodwill Account 1,40,000
To Plant and Machinery Account 50,000
To Freehold Property Account 50,000
(Being Reconstruction Account utilized for writing off
of Goodwill, Plant and Machinery and Freehold
property as per the scheme)
Question 5
The following is the summarized Balance Sheet of Bumbum Limited as at 31st March, 2012:
`
Sources of funds
Authorized capital
50,000 Equity shares of ` 10 each 5,00,000
10,000 Preference shares of ` 100 each 10,00,000
15,00,000
Issued, subscribed and paid up
30,000 Equity shares of ` 10 each 3,00,000
5,000, 8%Redeemable Preference shares of ` 100 each 5,00,000
Reserves & Surplus
Securities Premium 6,00,000
General Reserve 6,50,000
Profit & Loss A/c 1,80,000
2,500, 9% Debentures of ` 100 each 2,50,000
Sundry Creditors 1,70,000
26,50,000
Application of funds
Fixed Assets (net) 7,80,000
Investments (market value ` 5,80,000) 4,90,000
Deferred Tax Assets 3,40,000
Sundry Debtors 6,20,000
© The Institute of Chartered Accountants of India
5.14
Accounting
Cash & Bank balance 2,80,000
Preliminary expenses 1,40,000
26,50,000
In Annual General Meeting held on 20th June, 2012 the company passed the following
resolutions:
(i) To split equity share of `10 each into 5 equity shares of `2 each from 1st July, 2012.
(ii) To redeem 8% preference shares at a premium of 5%.
(iii) To redeem 9% Debentures by making offer to debenture holders to convert their holdings
into equity shares at ` 10 per share or accept cash on redemption.
(iv) To issue fully paid bonus shares in the ratio of one equity share for every 3 shares held
on record date.
On 10th July, 2012 investments were sold for ` 5,55,000 and preference shares were
redeemed.
40% of Debentureholders exercised their option to accept cash and their claims were settled
on 1st August, 2012.
The company fixed 5th September, 2012 as record date and bonus issue was concluded by
12th September, 2012.
You are requested to journalize the above transactions including cash transactions and
prepare Balance Sheet as at 30th September, 2012. All working notes should form part of your
answer. (November, 2010)
Answer
Bumbum Limited
Journal Entries
2009 Dr. (`) Cr. (`)
July 1 Equity Share Capital A/c (` 10 each) Dr. 3,00,000
To Equity share capital A/c (` 2 each) 3,00,000
(Being equity share of ` 10 each splitted into 5 equity shares
of ` 2 each)
July 10 Cash & Bank balance A/c Dr. 5,55,000
To Investment A/c 4,90,000
To Profit & Loss A/c 65,000
(Being investment sold out and profit on sale credited to Profit
& Loss A/c)
© The Institute of Chartered Accountants of India
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Internal Reconstruction
July 10 8% Redeemable preference share capital A/c Dr. 5,00,000
Premium on redemption of preference share A/c Dr. 25,000
To Preference shareholders A/c 5,25,000
(Being amount payable to preference share holders on
redemption)
July 10 Preference shareholders A/c Dr. 5,25,000
To Cash & bank A/c 5,25,000
(Being amount paid to preference shareholders)
July 10 Securities premium A/c Dr. 5,00,000
To Capital redemption reserve A/c 5,00,000
(Being amount equal to nominal value of preference shares
transferred to Capital Redemption Reserve A/c on its
redemption as per the law)
Aug 1 9% Debentures A/c Dr. 2,50,000
Interest on debentures A/c Dr. 7,500
To Debenture holders A/c 2,57,500
(Being amount payable to debenture holders along with
interest payable)
Aug. 1 Debenture holders A/c Dr. 2,57,500
To Cash & bank A/c (1,00,000 + 7,500) 1,07,500
To Equity share capital A/c 30,000
To Securities premium A/c 1,20,000
(Being claims of debenture holders satisfied)
Sept. 5 Securities premium A/c Dr. 1,10,000
To Bonus to shareholders A/c 1,10,000
(Being securities premium capitalized to issue bonus shares)
Sept. 12 Bonus to shareholders A/c Dr. 1,10,000
To Equity share capital A/c 1,10,000
(Being 55,000 fully paid equity shares of ` 2 each issued as
bonus in ratio of 1 share for every 3 shares held)
© The Institute of Chartered Accountants of India
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Accounting
Sept. 30 Securities Premium A/c 25,000
To Premium on redemption of preference shares A/c 25,000
(Being premium on preference shares adjusted from securities
premium account)
Sept. 30 Profit & Loss A/c Dr. 7,500
To Interest on debentures A/c 7,500
(Being interest on debentures transferred to Profit and Loss
Account)
Note: For capitalisation of Bonus shares and transfer to capital redemption reserve
account any other free reserves given in the balance sheet may also be used.
Balance Sheet as at 30th September, 2012
Particulars Notes Rs.
Equity and Liabilities
1 Shareholders' funds
a Share capital 1 4,40,000
b Reserves and Surplus 2 14,72,500
2 Current liabilities
a Trade Payables 1,70,000
Total 20,82,500
Assets
1 Non-current assets
a Fixed assets
Tangible assets 7,80,000
2 Current assets
Cash and cash equivalents 2,02,500
Trade payables 6,20,000
Other current assets 3 4,80,000
Total 20,82,500
Notes to accounts
Rs.
1. Share Capital
Authorized share capital
2,50,000 Equity shares of ` 2 each 5,00,000
© The Institute of Chartered Accountants of India
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Internal Reconstruction
10,000 Preference shares of `100 each 10,00,000
15,00,000
Issued, subscribed and paid up
2,20,000 Equity shares of ` 2 each 4,40,000
2. Reserves and Surplus
Securities Premium 85,000
Capital Redemption Reserve 5,00,000
General Reserve 6,50,000
Profit & Loss A/c (1,80,000 + 65,000 – 7,500) 2,37,500
Total 14,72,500
3. Other current assets
Preliminary expenses 1,40,000
Deferred tax assets 3,40,000
Total 4,80,000
Working Notes:
`
1. Redemption of preference share:
5,000 Preference shares of ` 100 each 5,00,000
Premium on redemption @ 5% 25,000
Amount Payable 5,25,000
2. Redemption of Debentures
2,500 Debentures of ` 100 each 2,50,000
Less: Cash option exercised by 40% holders (1,00,000)
Conversion option exercised by remaining 60% 1,50,000
1,50,000
Equity shares issued on conversion = = 15,000 shares
10
3. Issue of Bonus Shares
Existing equity shares after split (30,000 x 5) 1,50,000 shares
Equity shares issued on conversion 15,000 shares
Equity shares entitled for bonus 1,65,000 shares
Bonus shares (1 share for every 3 shares held) to be issued 55,000 shares
© The Institute of Chartered Accountants of India
5.18
Accounting
4. Securities Premium A/c
Balance as per balance sheet 6,00,000
Add: Premium on equity shares issued on
conversion of debentures (15,000 x 8) 1,20,000
7,20,000
Less: Capitalization for bonus issue (55,000 x 2) (1,10,000)
Adjustment for premium on preference shares (25,000)
Transfer to capital redemption reserve (5,00,000)
Balance 85,000
5. Cash and Bank Balance
Balance as per balance sheet 2,80,000
Add: Realization on sale of investment 5,55,000
8,35,000
Less: Paid to preference share holders (5,25,000)
Paid to Debenture holders (7,500 + 1,00,000) (1,07,500)
Balance 2,02,500
6. Interest of ` 7,500 paid to debenture holders have been debited to Profit & Loss Account.
EXERCISES
1. The paid-up capital of Toy Ltd. amounted to Rs. 2,50,000 consisting of 25,000 equity shares of Rs. 10 each.
Due to losses incurred by the company continuously, the directors of the company prepared a scheme for
reconstruction which was duly approved by the court. The terms of reconstruction were as under:
(i) In lieu of their present holdings, the shareholders are to receive:
(a) Fully paid equity shares equal to 2/5th of their holding.
(b) 5% preference shares fully paid-up to the extent of 20% of the above new equity shares.
(c) 3,000 6% second debentures of Rs. 10 each.
(ii) An issue of 2,500 5% first debentures of Rs. 10 each was made and fully subscribed in cash.
(iii) The assets were reduced as follows:
(a) Goodwill from Rs. 1,50,000 to Rs. 75,000.
(b) Machinery from Rs. 50,000 to Rs. 37,500.
(c) Leasehold premises from Rs. 75,000 to Rs. 62,500.
Show the journal entries to give effect to the above scheme of reconstruction.
© The Institute of Chartered Accountants of India
5.19