Page 96 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 5: Internal Reconstruction of Companies

Issued and Subscribed Capital: Patents (` 4,25,000 – ` 2,67,730) 1,57,270 notes
3,750 preference shares of ` 50 each Current Assets, Loans and Advances:
fully paid 1,87,500 Stock (` 27,500 – ` 7,500) 20,000
2,500 equity shares of ` 25 each fully paid 62,500 Sundry Debtors (` 38,250 – ` 7,650) 30,600

Unsecured Loans: Cash 250
Bank Overdraft 10,000
Current Liabilities & Provisions:
Sundry Creditors 15,000
2,75,000 2,75,000

Illustration 7
The Balance Sheet of Nirmala Co. Ltd. on 31 March, 2006 was as follows:
st
liabilities ` assets `
Share Capital: Goodwill 45,000
6,000, 10% Preference shares of ` 100 each 6,00,000 Freehold Properties 6,00,000
12,000, Equity shares of ` 100 each 12,00,000 Plant & Machinery 9,00,000
8% Mortgage Debentures 3,00,000 Stock-in-trade 1,50,000
Bank Overdraft 1,50,000 Debtors 1,20,000
Creditors 3,00,000 Profit & Loss A/c 7,35,000
25,50,000 25,50,000
The company got the following scheme of capital reduction approved by the court:

(1) The 10% preference shares to be reduced to ` 75 per share, fully paid and the equity shares
to ` 37.50 each.
(2) The 8% Mortgage Debentures took over the stock-in-trade and the book debts in full
satisfaction of the amount due to them.
(3) The goodwill account to be eliminated.
(4) The freehold properties to be depreciated by 50%.
(5) The value of the plant and machinery to be increased by ` 1,50,000.

Give journal entries for the above and prepare the revised Balance Sheet.
Solution

nirmala co. ltd.
Journal
Date particulars l.f. ` `
10% Preference Share Capital A/c Dr. 1,50,000
Equity Share Capital A/c Dr. 7,50,000
To Reconstruction A/c 9,00,000
(Being reduction in capital by reducing 10% preference shares
@ ` 25 per share and equity shares @ ` 62.50 per share)
8% Mortgage Debentures A/c Dr. 3,00,000
To Stock-in-trade A/c 1,50,000

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