Page 100 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 5: Internal Reconstruction of Companies

The company has incurred heavy losses. The following scheme of reconstruction is agreed notes
upon:
(a) to make the existing ` 100 equity shares fully paid up, and then to reduce them to ` 20
each.
(b) to settle the claims of the holders of the first debentures by issuing 4,000 12.5% Debentures
of ` 100 each.
(c) to discharge the claims of the holders of the second debentures by issuing 8,000,
14% debentures of ` 100 each.
(d) to pay ` 6,00,000 to Mr. Ramesh in the full settlement of his account.
(e) to allot 30,000 fresh equity shares of ` 20 each to discharge the remaining trade creditors.
(f) to write off the fictitious assets and to reduce the fixed assets.
Pass the necessary journal entries to give effect to the aforesaid scheme and show the post
reconstruction Balance Sheet. Assume that (i) all the formalities are duly complied with and (ii)
the company has only one bank account to transact all the receipts and payments.

Solution
Journal of s. k. industries limited
Date particulars l.f. ` `
2006
June 30 Equity Shares Final Call Account Dr. 8,00,000
To Equity Share Capital Account 8,00,000
(Final Call money due on 20,000 equity shares
@ ` 40 per share)
Bank Account Dr. 8,00,000
To equity share final call account 8,00,000
(Being receipt of final call money on 20,000 share
@ ` 40 per share)
Equity Share Capital Account Dr. 16,00,000
To Reconstruction Account 16,00,000
(Being reduction of equity capital @ ` 80 per share on
20,000 shares)
10% first debentures account Dr. 4,00,000
Outstanding Interest on Debentures A/c Dr. 40,000
To 12½% Debentures Account. 4,00,000
To Reconstruction Account 40,000
(Being issue of 4000, 12½% Debentures in lieu of 10%
First Debentures and outstanding interest on debentures)
12% Second Debentures Account Dr. 10,00,000
Outstanding Interest on Debentures A/c Dr. 1,20,000
To 14% Debentures Account 8,00,000
To Reconstruction Account 3,20,000

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