Page 88 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 5: Internal Reconstruction of Companies

notes

Did u know? Generally, consolidation is done when the value of shares is in very small
amount.
Illustration 1 (Alteration in Capital by Sub-division)

XY Limited with a share capital of 50,000 equity shares of ` 100 each fully paid, resolves to sub-
divide these shares into shares of ` 50 each fully paid. Show journal entries.
Solution

Journal of xy limited
Date particulars l.f. ` `
Equity Share Capital (` 100) A/c Dr. 50,00,000
To Equity Share Capital (` 50) A/c 50,00,000
(Being sub-division of 50,000 equity shares of
` 100 each fully paid into 1,00,000 equity shares
of ` 50 each)

Illustration 2 (Conversion of Shares into Stock at Discount)
XYZ Limited passed a resolution for the conversion of its 50,000 equity shares of ` 10 each fully
paid into ` 5,25,000 stock on the basis of ` 105 of stock for every 10 fully paid shares of ` 10 each.
Show the journal entries in the books of XYZ limited.

Journal of xyZ limited
Date particulars l.f. ` `
Equity Share Capital Account Dr. 5,00,000
Discount on Stock Account Dr. 25,000
To Equity Stock Account 5,25,000
(Being conversion of 50,000 equity shares of ` 10
each fully paid into 5,000 equity stock of ` 105 each)

Illustration 3 (Reconversion of Equity Stock into Fully Paid up Shares)
A limited company passed a necessary resolution to convert its ` 10,00,000 equity stock of
` 100 each into 1,00,000 equity shares of ` 10 each fully paid up. Show necessary journal entries
in the books of the company.

Solution
Journal entries
Date particulars l.f. ` `
Equity Stock Account Dr. 10,00,000
To Equity Share Capital Account 10,00,000
(Being reconversion of 10,000 equity stock in
1,00,000 equity shares of ` 10 each fully paid)

Cancellation of Unissued Share Capital: As per Section 94(1)(e) of the Companies Act, 1956, a
company is permitted to decrease the amount of its nominal capital by cancellation of shares.
Cancellation will be of those shares which at the date of passing of the resolution for cancellation
of shares in general meeting in that behalf have not taken or agreed to be taken by any person and

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