Page 95 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Accounting for Companies – II

notes (iii) That the amount thus rendered available for the reduction of the assets is apportioned as
follows:
Preliminary Expenses, Profit and Loss Account and Discount on issue of shares to be
written off entirely, ` 15,400 off the leasehold premises, ` 7,500 off the stock, 20% off
the plant and machinery and sundry debtors and the balance available to be written off
patents. Pass necessary journal entries and prepare the Balance Sheet after reconstruction
in the books of the Bhagwan Co. Ltd.
Solution

Journal of Bhagwan co. ltd.
Date particulars l.f. ` `
2006
March, 31 Preference Share (` 100) Capital A/c Dr. 3,75,000
To Preference Share (` 50) A/c 1,87,500
To Capital Reduction A/c 1,87,500
(Being reduction in capital by converting 3,750 Preference
Shares of ` 100 each fully paid up into 3,750 preference
shares of ` 50 each fully paid up)
Equity Shares (` 100) Capital A/c Dr. 2,50,000
To Equity Shares (` 25) Capital A/c 62,500
To Capital Reduction A/c 1,87,500
(Being reduction in capital by converting 2,500 equity shares of
` 100 each into 2,500 equity shares of ` 25 each fully paid)
Capital Reduction A/c Dr. 3,75,000
To Profit and Loss A/c 57,500
To Preliminary Expenses A/c 6,000
To Discount on Issue of Shares A/c 9,000
To Leasehold Premises A/c 15,400
To Stock A/c 7,500
To Plant & Machinery A/c 4,220
To Provision for Bad Debts A/c 7,650
To Patents A/c 2,67,730

(Being utilization of the amount of capital reduction in writing off
the fictitious assets and accumulated losses)

the Bhagwan company ltd. (and reduced)
Balance sheet as on 31 march, 2006
st
liabilities ` assets `
Share Capital: Fixed Assets:
Authorised Capital Leasehold Premises
5,000 preferences shares of ` 50 each 2,50,000 (` 65,400 – 15,400) 50,000
5,000 equity shares of ` 25 each 1,25,000 Plant & Machinery
3,75,000 (` 21,100 – ` 4,220) 16,880

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