Page 104 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 5: Internal Reconstruction of Companies

Shares of ` 90 each fully paid up 10,80,000 (` 7,20,000 – ` 2,40,000) 4,80,000 notes
16,000 Equity Shares of ` 10 each 1,60,000 Machinery
1,920 Equity Shares of ` 5 each 9,600 (` 14,40,000 – ` 4,80,000) 9,60,000
Secured Loans: Current Assets:
6% Debentures 4,00,000 Stock 1,20,000
Current Liabilities: Debtors 2,49,600

Creditors 1,60,000
18,09,600 18,09,600
Illustration 11
XYZ Industries Ltd. whose Balance Sheet as on 31 March, 2006 appears below, formulated a
st
scheme of reconstruction, details of which follows and sacred approval of all concerned:

Balance sheet of xyZ industries ltd.
liabilities ` assets `
Equity Shares Capital: Fixed Assets 11,20,000
1,00,000 Shares of ` Patents & Copyrights 80,000
20 each, ` 10 paid up 10,00,000 Investment at cost 65,000
8% preference shares 8,000
shares of ` 100 each, ` 75 paid up 6,00,000 (Market value ` 55,000)
Secured Loans: Current Assets 8,49,000
9% Debentures 6,00,000 Profit and Loss A/c 4,28,000
+ Interest 1,08,000 7,08,000

Bank Overdraft 1,50,000
Sundry Creditors
(including interest of ` 15,000 due to Bank) 84,000
25,42,000 25,42,000
Preference dividend is in arrear for one year.
(a) Preference shareholders to give up their claims, inclusive of dividends, to the extent of 30%
and desire to be paid off.

(b) Debenture-holders agreed to give up their claims to interest in consideration of their rate
of interest being enhanced to 10%.
(c) Bank agrees to give up 50% of their interest outstanding in consideration of their being
paid off at once.
(d) Sundry creditors would like to grant a discount of 5% if they were to be paid off
immediately.
(e) Balances on Profit and Loss A/c, Patents and Copyrights and 25% of the total Sundry
Debtors of ` 1,20,000 to be written off. Fixed assets to be written down by ` 14,000.
Investments to reflect their market value.
(f) To the extent not specifically stated, equity shareholders suffer on reduction of their
rights.
(g) Cost of reconstruction ` 3,350.

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