Professional Documents
Culture Documents
Q.1. Following are the liabilities and assets of Sick Ltd, as on 31.03.2018:
₹
I. Equity and Liability :
1. Shareholder’s Fund :
(a) Equity Share of ₹ 100 each fully paid 7,50,000
Preference shares of ₹ 100 each fully paid 3,00,000
(b) Reserves and Surplus : Balance of Loss (1,20,000)
2. Current Liabilities:
Trade Payable (Creditors) 5,87,000
Total 15,17,000
II. Assets :
1. Non-current Assets:
(a) Fixed Assets:
Tangible 9,80,000
Intangible (Goodwill) 1,00,000
(b) Non-current Investment 20,000
2. Current Assets:
Inventory 2,00,000
Trade Receivable (Debtors) 1,60,000
Cash & Cash equivalents 57,000
Total 15,17,000
Note : Arrear Preference dividends ₹ 66,000.
The Board of Directors decided upon the following scheme of reconstruction:
The Preference Shares are to be converted into 12% unsecured debenture of₹ 100 each in regard to 80% of
their capital and the balance to be sacrificed. ₹ 50,000 are to be paid in full settlement of arrear preference
dividend.
Paid up value of each Equity Share would be reduced to ₹ 50 each.
All equity shareholders agree to pay the balance in cash.
Goodwill is to be written off fully. Investments are to reflect their market value of₹ 30,000.
Obsolete items in stock of₹ 50,000 are to be written off. Provision for doubtful debts to the extent of 5% of debtors
would be provided for.
Losses to be written off and balance available to be used to write down the fixed assets.
Expenses in connection with the scheme amounted to ₹ 6,000.
The scheme was duly approved and put into effect. Equity shareholders paid the balance call money in full.
Show the necessary journal entries to give effect to the above scheme and also prepare the Balance Sheet of the
company after reconstruction (narration not required).
Q.2. Following are the liabilities and assets of Weak Ltd. as on 31.03.2017 :
₹
I. Equity and Liability :
1. Shareholder’s Fund :
(a) Equity Share of ₹ 10 each fully paid 12,00,000
8% Preference shares of ₹ 10 each fully paid 5,00,000
(b) Reserves and Surplus :
Accumulated Loss (8,00,000)
2. Non-current Liabilities:
10% Debentures 6,00,000
3. Current Liabilities:
Trade Payable (Creditors) 3,00,000
Total 18,00,000
II. Assets :
1. Non-current Assets:
(a) Fixed Assets:
Tangible :(Buidling ₹ 6,00,000;
Plant and Machinery ₹ 4,00,000) 10,00,000
Intangible (Goodwill) 2,00,000
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(b) Non-current Investment -
2. Current Assets:
Inventory 3,00,000
Trade Receivable (Debtors) 2,50,000
Cash & Cash equivalents 50,000
Total 18,00,000
Q.3. The following was the Statement of Assets and Liabilities of KB Ltd. as on 31.03,2017 :
Particulars Note No. Amount
₹
I. Equity and Liabilities :
1. Shareholders’ Fund :
(a) Share Capital 1 2,22,000
(b) Reserve and Surplus 2 (44,600)
2. Non-current liabilities :
10% Debentures 50,000
3. Current Liabilities :
Accrued Debenture Interest 5,000
Trade Payables (Creditors) 30,850
Short Term Provisions (Provision for taxes) 8,000
2,71,250
II. Assets:
1. Non-current Assets :
Fixed Assets
(i) Tangible Assets 3 1,92,700
(ii) Intangible Assets (Goodwill) 25,000
2. Current Assets :
(a) Inventories (Stock) 20,550
(b) Trade Receivable (Debtors) 30,000
(c) Cash and Cash Equivalents (Cash at Bank) 3,000
2,71,250
Notes to Accounts :
1. Share Capital:
(a) Authorised : 1
40,000 equity shares of ₹ 10 each 4,00,000
(b) Subscribed
(i) Subscribed and fully paid up 18000 equity shares @ ₹ 10 each 1,80,000
(ii) Subscribed but not Fully paid up 6,000 equity shares @ ₹ 10 each 60,000
Less: Calls-in-arrear 18,000 42,000
2,22,000
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2. Reserves and Surplus :
Balance in statement of Profit & Loss (44,000)
Add : Loss for the year (6,00)
(44,600)
3. Fixed Assets-Tangible Assets :
(a) Land and Building 91,000
(b) Plant and Machinery 1,01,700
1,92,700
(N. B. Figure in the parenthesis represent loss)
The directors have had a valuation made of the Plant and Machinery and find it overvalued by ₹ 20,000. It is
proposed to write down this assets to its true value and to extinguish the deficiency in the statement of Profit
and Loss and to write off Goodwill. For this purpose a reconstruction scheme is adopted by the company on the
following terms :
(i) Forfeit the shares on which the call is outstanding.
(ii) Reduced the paid up capital by ₹ 3 per share.
(iii) Reissue the forfeited shares at ₹ 5 per share, ₹ 7 paid up.
(iv) Use the accrued debenture interest forgone by the debenture holders.
(v) Utilise the provision for taxation if necessary.
Draft the necessary journal entries and the new Balance Sheet of KB Ltd. after implementation of the
reconstruction scheme.
Q.4. Green Ltd. has decided to reconstruct the Balance Sheet since it had accumulated huge losses. The following
is the Balance Sheet of the Company on 31.3.15 before reconstruction.
Particulars Amount
₹
I. Equity and Liabilities :
1. Shareholders’ Fund :
(a) 60,000Eq. Share of ₹ 10 each fully paid up 6,00,000
4000, 12% Preference shares of ₹ 100 each fully paid up 4,00,000
(b) Reserve and Surplus
Profit and Loss balance (1,65,000)
2. Non-current liabilities :
10% Debentures 2,50,000
3. Current Liabilities :
Trade Payables (Creditors) 45,500
Bank Overdraft 1,36,750
12,67,250
II. Assets:
1. Non-current Assets :
(i) Fixed Assets
(a) Tangible Assets
Land and Building 5,00,000
Plant and Machinery 2,75,000
Furniture 32,500
(b) Intangible Assets:
Goodwill 1,50,000
(ii) Non-Current Investment Nil
2. Current Assets :
(a) Inventories 2,63,000
(b) Trade Receivable (Debtors) 46,000
(c) Cash and Cash Equivalents (Cash at Bank) 750
12,67,250
Note : The preference dividends are in arrear for five years.
A capital reduction scheme is submitted as follows :
(i) Equity Shares to be reduced to ₹ 5 each.
(ii) All arrears of preference dividends to be cancelled.
(iii) Each Preference Share to be reduced to ₹75 and then exchanged for one new 12% Preference Share of ₹ 50
each and five Equity shares of ₹ 5 each.
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(iv) The debit balance i.e., the negative balance of profit and loss to be written off. Plant and Machinery to be
written down as much as possible. Goodwill is to be written off in full.
v) The debentures are to be redeemed at 5% premium. Holders being given the option to subscribe at par for
new 12% Debentures.
Approval of the Court is obtained. 2,00,000 new Equity Shares are issued at par payable in full on application.
Holders of old debentures to the extent of ₹ 1,00,000 exercised their option and subscribed for new debentures.
Expenses in connection with the scheme amounted to ₹ 6,750.
Pass necessary Journal Entries (without narration) to give effect to the above transactions and prepare the
Balance Sheet of X Ltd. after reconstruction.
Q.6. The following is the Balance Sheet of Y. Ltd. as at 31st March, 2014 :
Liabilities ₹ Liabilities Assets ₹
80,000 Equity Shares of' ₹10 each 8,00,000 Land & Buildings 6,00,000
4,000, 8% Preference Shares of Plant & Machinery 2,00,000
₹100 each fully paid 4,00,000 Investments 1,00,000
6% Debentures 2,00,000 Stock 2,40,000
Interest due on Debentures 60,000 Debtors 80,000
Bank Overdraft 1,00,000 Cash 20,000
Creditors 40,000 Profit & Loss A/c:
Balance 4,40,000
Less: Profit for the year 80,000 3,60,000
16,00,000 16,00,000
The preference dividends are in arrear for three years. Considering the improvement made in the working of the
company, the directors decide upon a scheme of reconstruction with a reduction of capital and it. is approved on
the following terms :
(a) The preference shareholders agree that their shares be reduced to a billy paid share of ₹ 90 each. They will
accept Equity Shares of ₹ 4 each fully paid for half of their arrear dividends and rest half will be forgone.
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(b) The Equity shareholders agree that their shares be reduced to fully paid shares of ₹ 4 each and further
subscribe 40,000 Equity Shares of ₹ 4 each fully paid for working capital purposes.
(c) The Debenture holders have agreed to accept fully paid Equity Shares for the interest due to them.
(d) Investments are to be sold for ₹ 90,000 and Money thus available along with new issues be utilized to pay off
Bank Overdraft.
Show the necessary Journal Entries to record the scheme of capital reduction and draw up a new Balance Sheet
after the scheme after taking into accounts : (i) Plant and Machinery be depreciated by 10% (ii) Obsolete stock
of ₹ 30,000 be written off.
Q.8. The Balance Sheet of Bad Luck Ltd. as on 31.03.2011 was as follows :
Liabilities ₹ Assets ₹
8,000,10% Cumulative Preference Goodwill 2,00,000
Shares (₹ 100) 8,00,000 Land and Building 4,00,000
1,20,000 Equity Shares (₹ 10) 12,00,000 Plant and Machinery 8,00,000
Securities Premium 1,80,000 Furniture 40,000
Capital Reserve 1,80,000 Debtors 8,00,000
Unsecured Loan 2,00,000 Bills Receivable 2,00,000
(from Managing Director) Stock 6,00,000
Sundry Creditors 12,00,000 Cash at Bank 1,80,000
Outstanding expenses 2,80,000 Preliminary Expenses 20,000
(Including Managing Director’s Profit and Loss A/c (Loss) 8,00,000
Commission ^80,000)
40,40,000 40,40,000
The following scheme of reconstruction has been agreed upon and duly approved by the Court—
(a) Equity Shares are to be converted into 6,00,000 shares of ₹ 2 each arid 90% were surrendered.
(b) Dividend on cumulative Preference Shares are in arrear for 3 years and preference shareholders agree to
forego their arrear dividend claims for consideration of being conversion of 10%. Preference Shares into 11%
Preference Shares.
(c) Creditors agree to reduce their claim by 20% for consideration of getting ₹ 1,40,000 shares out of the
surrendered shares.
(d) Managing Director foregoes his claims.
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(e) Assets are to be written off :
Goodwill by ₹ 2,00,000; Plant by ₹ 2,00,000; furniture by ₹ 32,000; Debtors by ₹ 1,40,000.
(f) Land and Building will be increased to ₹ 4,40,000
(g) Reconstruction Expenses paid ₹ 40,000
(h) 2,000, 13% Debentures of ₹ 100 each are issued for increasing working capital.
(i) Balance of shares surrendered will be cancelled.
Show Journal entries and Balance Sheet after reconstruction.
Q.9. The following was the Balance Sheet of a Sick Company Ltd. as on 31 December, 2008:
Liabilities ₹ Assets ₹
Authorised Capital 60,000 Equity shares Goodwill 30,000
Of ₹ 10 each 6,00,000 Land & Building 61,500
Issued, Subscribed and Paid up Capital: Machinery 1,52,550
36,000 shares of ₹ 10 each 3,60,000 Preliminary expenses 4,500
Less: calls in arrear 27,000 Stock 30,825
(₹ 3 per share on 9,000 shares) 3,33,000 Book debts 45,000
Sundry Creditors 46,275 Cash at Bank 4,500
Provision for taxes 12,000 Profit & Loss A/c
Balance as per last Balance
Sheet 68,700
Less : Profit for the year 6,300 62,400
3,91,275 3,91,275
The directors have had a valuation made of the machinery and find it over valued by ₹ 30,000. It is proposed to
write down this asset to its true value and to extinguish the deficiency in the Profit & Loss Account and to write
off Goodwill and Preliminary Expenses, by the adoption of the following course :
(i) Forfeit the shares on which the call is outstanding.
(ii) Reduce the paid-up capital by ₹ 3 per share.
(in) Reissue the forfeited shares at ₹ 5 per share.
(iv) Utilise the provision for taxation, if necessary.
The shares on which the calls were in arrear were duly forfeited and reissued on payment of ₹ 5 per share. You
are required to draft the journal entries necessary to carryout terms of the scheme.