Page 111 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes 13. Ram Dev Co. Ltd. passed necessary resolution and obtained the sanction of the court for
the reduction of its share capital by ` 5,00,000 for the purposes enumerated hereunder:
(a) To write off the debit balance of Profit and Loss Account of ` 2,10,000.
(b) To reduce the value of Plant and Machinery by ` 90,000 and Goodwill by ` 40,000.
(c) To reduce the value of Investments to market value by writing off ` 80,00,000
The reduction was made by converting 50,000 preference shares of ` 20 each, fully paid
to the same number of preference shares of ` 15 each fully paid, and by converting 50,000
equity shares of ` 20 each, ` 15 paid up into 50,000 equity shares of ` 10 each fully paid.

Show journal entries necessary in relation to the reduction of share capital.
14. On the reconstruction of a company, the following terms were agreed upon:
The shareholders to receive in lieu of their present holding (viz. 1,00,000 shares of ` 10
each) the following:

(a) Fully paid equity shares to 2/5 of their holding.
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(b) 12% preference shares fully paid to the extent of 1/5 of the above new equity
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shares.
(c) ` 1,20,000, 16% second debentures.

An issue of 1,00,000 15% first debentures were made and payment for the same fully
received in cash.
The goodwill, which stood at ` 6,00,000, was written down to ` 3,00,000. The plant and
machinery which stood at ` 2,00,000 was written down to ` 1,50,000. The freehold premises
which stood at ` 3,00,000 were written down to ` 2,50,000.

Make the journal entries in the books of the company based on the above reconstruction.
15. The Balance Sheet of Danish Co. Ltd. as on 30 June, 2006 is as follows:
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liabilities ` assets `
Share Capital: Fixed Assets:
Issued Share Capital 50,000 Goodwill 50,000
equity shares of ` 10 each Other fixed assets 4,50,000
fully paid up. 5,00,000 Current Assets:
50,000 7% preference shares of Stock 1,25,000
` 10 each fully paid up. 5,00,000 Debtors 1,50,000
Miscellaneous Expenditure:
P&L A/c 2,25,000
10,00,000 10,00,000
It was resolved that equity shares of ` 10 each to be reduced to fully paid shares of ` 6
each and 7% preference shares of ` 10 each be reduced to 7½% fully paid preference shares
of ` 7 each. Number of shares in each case remained the same. It is further resolved that
the amount so available be used for writing off the debit balances of the profit and loss
account and goodwill account completely and other fixed assets as far as possible. There
were arrears of preference dividend for the last three years and it was decided that they be
cancelled.

You are required to make journal entries and prepare the revised Balance Sheet.

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