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Unit 5: Internal Reconstruction of Companies

To Reconstruction Account notes
(amount of sacrifice)
3. When the amount of Reconstruction A/c is utilized in writing off accumulated losses,
fictitious assets and bringing down the assets to their reasonal value:
Reconstruction Account Dr. (Total amount written off)

To Profit and Loss A/c
To Discount on Issue of Shares A/c
To Discount on Issue of Debentures A/c
To Preliminary Expenses A/c

To Patents A/c as case may be
To Goodwill A/c
To Trade Marks A/c
To Unrecorded Liabilities A/c
To Other Assets A/c

4. If there is any appreciation in the value of any assets–
Particular Assets Account Dr.
(amount of appreciation)
To Capital Reduction Account

5. If any contingent liability arises and is paid immediately, journal entry will be-
(i) Reconstruction (Capital Reduction) A/c Dr.
To Contingent Liability A/c
On payment-

(ii) Contingent Liability A/c Dr.
To Bank A/c
6. If there remains some credit balance in the reconstruction account that will be transferred
to Capital Reserve Account.
Reconstruction Account Dr.
To Capital Reserve Account
7. If the amount of writing off the assets, accumulated losses and deferred expenses is more
the capital reduction, excess will be adjusted against the reserves appearing in the liability
side. The journal entry will be-
Reserve Account Dr.

To Reconstruction/Capital Reduction Account.
internal reconstruction

Illustration 4
Ravi Raghav Co. Ltd. passed the necessary resolution and received sanction of the court for the
reduction of its share capital by ` 2,50,000 for the purposes enumerated hereunder: (a) To write
off the debit balance of profit and loss account ` 1,05,000. (b) To reduce the value of plant and

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