CHANGES IN CAPITAL STRCUTURE AND

RESTRUCTURING

1.0 Introduction

FINANCIAL Base on going concern concept, the business

incorporate for long term and never wind up.
Therefore, a business strategies and planning is very
ACCOUNTING 4 important in order to achieve better performance.
However, in practices the business may not survive
as long as we expect because of a several of factor
contribute into business survive. For example, global
financial crisis may affect the business performance.
Furthermore, the business also may face with serious
debt until some of the business asset possibly will
sell.

Initial indicator shows the business may faces

CHAPTER 3 serious problem when the performance does not
perform very well for a years. Possibly the firm
cannot generate profit until the business face with
higher losses. The loss may impact the business
operation where the creditors do not willing to
provide better credit and it may affect the business
CHANGES IN operation.

Heavy losses do not mean the business should go for

CAPITAL wind up stages. The business should go for
restructuring either internal or external.
STRCUTURE AND Furthermore, the business also can run changes in
capital structure.
RESTRUCTURING
Internal restructuring is closely related with the
capital reduction. This situation may affect the
debenture holder, creditor and shareholder.
Furthermore, External restructuring refers to the
existing business will wind up and all assets and
liabilities possibly take over by new company. The
takeover is very important to settle the financial
problem.

Shareholder will be affected when the business

cannot perform very well because they already put
large amount of money. If the business continues get
losses so the payout dividend cannot be issued.
Therefore, shareholder does not interest with the
losses because it may affected their wealth.

For accounting treatment there is very important for

student to understand the original transaction before
the adjustment is makes. Understanding the items as
categorized as expenses, revenue, assets and
liabilities are very important. We start with journal
treatment as shows as below:

http://www.klmanagement.com.my/blog/pn17-
listed-companies-in-financial-distress/
PN17: Listed Companies in Financial Distress
What is PN17?
In this article, I will talk about on listed companies
that are classified as PN17. PN17 stands for
Practice Note 17/2005 and is issued by Bursa
Malaysia; relating to companies that are in financial
distress. Companies that fall within the definition of
PN17 will need to submit their proposal to the
Approving Authority to restructure and revive the
company in order to maintain the listing status.
While there are more than a thousand companies
listed in Bursa Malaysia, not all of them are in a
financially sound position. Although at the point of
listing, these listed companies must meet the
Listing Requirements of Bursa Malaysia, given
time, the company’s financial position and business
direction can change for the better or for the worse.
There are many reasons for these changes, such as
change in management, risk profile, management
team’s experience, foresight, financial appetite,
over-gearing etc.
Prior to 2005, listed companies that are in this
PN17 condition are classified under PN4.
Is your company PN17 classified, or know a
friend’s company that does? If so, request for
your free consultation with KLM on how to
restructure. Contact us now!
Criteria for a listed company to be classified as a
PN17 company are as follows:-
1. Shareholders’ fund is equal or less than 25% of
the total issued and paid up capital of the listed
company; or
2. Receivers and/or managers have been
appointed to take control of at least 50% of the
total assets employed of the listed company on
a consolidated basis; or
3. Winding up of a subsidiary or associate
company which makes up at least 50% of the
total assets employed of the listed company on
a consolidated basis; or
4. The auditors have expressed adverse or
disclaimer opinion on the listed company’s
latest audited accounts; or
5. For any default in payment, the listed company
must announce its inability to provide a
solvency declaration through Practice Note
1/2001 or PN1; or
6. The listed company has suspended or ceased
all or a major part of its operations.
There are many reasons and circumstances for a
listed company to fall under the classification of
PN17. For example, some cases are classified as
PN17 due to external factors such as currency
fluctuation and economic forecasts.
Since the mid of 2008, we’ve started experiencing
certain number of economic problems, but many
never expected the situation and impact to be that
serious. Examples of some foreign giants that are
badly affected by the “sudden” adverse change in
global economic conditions are General Motors and
Citigroup.
For other companies like AIG, their problems
probably arise due to high risk appetite as well as
economic miscalculations.
PN17 – Regularizing & Change of Business
Direction or Policy
When a company is announced as a PN17 company
(list of PN17 companies in Malaysia), it has to
undergo a few exercises to comply with the
requirements of Bursa; in which failing to do so
will result in suspension in trading list securities (5
market days from the day of notice, the next day)
de-listed from the market or both.
• Regularize its condition within 12 months (1
year) from the date it was announced a PN17
company.
• Submit a regularization plan to the Securities
Commission of Malaysia to see if the
regularization plan will result in a significant
change in the business direction or policy, or;
• Submit a regularization plan to Bursa Malaysia
to obtain approval (and implement) the
regularization plan (that will not result in a
significant change in the business direction or
policy.)
• Implement the plan according to the time
stipulated by Bursa or Securities Commission;
whichever is applicable.
No longer considered PN17 company
For a PN17 company to no longer be considered
PN17, it has to first:
1. Complete the implementation of approved
regularization plan.
 2. Submit an application & necessary Journal entries to record a scheme of capital
documents to Bursa to prove that it’s no reduction
longer a PN17 company.

EXAMPLE: PN17 Companies Dr Share capital account xx

Cr Capital reduction account xx
http://www.bursamalaysia.com/market/listed-
companies/list-of-companies/pn17-companies/ Dr Reserve account xx
Cr Capital reduction xx
List updated: 8 Sept 2014
Dr Capital reduction xx
1. AUTOAIR HOLDINGS BERHAD 2 Cr Accumulated loss account xx
2. BINA GOODYEAR BERHAD 2
3. BIOSIS GROUP BERHAD2 Dr Capital reduction xx
4. CHINA STATIONERY LIMITED2 Cr Assets account xx
5. GLOBAL CARRIERS BERHAD 2
6. GW PLASTICS HOLDINGS BERHAD 2 Dr Liability account xx
7. HAISAN RESOURCES BERHAD 2 Cr Share capital account xx
8. HB GLOBAL LIMITED 2
Dr Capital reduction account xx
9. HIGH-5 CONGLOMERATE BERHAD
Cr share capital account xx
(formerly known as SILVER BIRD GROUP
BERHAD) 2
Dr Capital reduction account xx
10. HYTEX INTEGRATED BERHAD 2 Cr Cash/Bank xx
11. INTEGRATED RUBBER CORPORATION
BERHAD 2 Dr Capital reduction account xx
12. IRM GROUP BERHAD 2 Cr Capital reserve xx
13. KEJURUTERAAN SAMUDRA TIMUR
BHD 2 Note: There is very important for student to
14. LFE CORPORATION BERHAD 2 understand the origin transaction because the journal
15. LION CORPORATION BERHAD 2
stated at above clearly shows the contrast from the
16. MAA GROUP BERHAD (formerly known as
original. For example, during Initial public offering
MAA HOLDINGS BERHAD) 2
17. METAL RECLAMATION BERHAD 2 (IPO) to gain the capital from the public the
18. OCTAGON CONSOLIDATED BERHAD 2 accounting treatment is:
19. PERWAJA HOLDINGS BERHAD 2
20. PETROL ONE RESOURCES BERHAD 2 Dr. Bank xx
21. TPC PLUS BERHAD 2 Cr Shares xx
22. VTI VINTAGE BERHAD 2
When the business faces problem and undergo the
1 capital structure the following journal is contra with
Companies that triggered any of the criteria the original which shows at above.
pursuant to Amended Practice Note 17/2005 of the
Listing Requirements of Bursa Malaysia Securities Assets – new or additional asset will records in Debit
Berhad which came into effect on 5 May 2006. side and any decrease will show in Credit side.
2
Companies that triggered any of the criteria Basically, original transaction related with the assets
pursuant to Practice Note 17 of the Main Market will shows
Listing Requirements of Bursa Malaysia Securities
Berhad which came into effect on 3 August 2009. Dr Assets xx
Cr Bank/Creditor xx
Capital Reduction Answer 1
a. Dr Ord. Shares 120,000
Losses may affected the business wealth include Cr CRA 120,000
shareholder. If the losses does not handle properly it
may bring the business wind up. Therefore, the Dr. 9 % Pref Shares 70,000
schemes such as capital reduction is very important Cr CRA 70,000
to avoid the business continue losses. However, the
scheme need to get approval from court and others OR
stakeholder.
Dr. Ord Shares 120,000
Example 1 Pref Shares 70,000
Cr. CRA 190,000
The summarized financial position of A Bhd at 31
December 2014 is as follows
RM
Non-Current Assets b.. CRA 45,500
Land & Building 204,000 Land & Building 24,000
Furniture & Fixtures 76,500 Furn & Fitt 21,500

Goodwill 32,000 c.. CRA 100,500

Profit & Loss 68,500
Current Assets Goodwill 32,000
Inventory 25,500
Trade Receivables 43,000
Bank 1,200 Capital Reduction Account
382,200 RM RM
L&B 24,000 Ord Shares 120,000
Authorized and fully paid capital Furn&Fitt 21,500 Pref Shares 70,000
Ordinary shares@RM1.00 each 200,000 Goodwill 32,000
9% pref. Sharse@RM1.00 each 200,000 Profit &Loss 68,500
Capital 44,000
Profit & Loss (68,500) Reserve
190,000 190,000
Current Liability
Trade Payables 50,700
382,200 Balance Sheet as at 31 December 2014
Non-current assets RM
The following scheme of reconstruction was duly Land and Building 180,000
approved by court: Furn & Fitt 55,000
a. The ordinary shares are to be reduced by
RM0.60 each and the preference shares are Current Assets
to be reduced by RM0.35 each Inventories 25,500
b. The non-current assets were to be recorded Trade receivable 43,000
at these fair values: Bank 1,200
a. Land and Building RM180,000 304,700
b. Furn & Fitt RM 55,000 Authorized and
c. Intangible assets and the debit balance on fully paid capital
the profit and loss account are to be written Ordinary shares 80,000
off Pref. Shares 130,000

Show the journal entries to recorded the above Capital Reserve 44,000
scheme and the statement of financial position Current Liabilities
immediately after reduction Trade payable 50,700
304,700
Example 2
Balance Sheet as at 31 December 2013 b. Dr Ord. Shares 350,000
Non-current assets RM Cr CRA 350,000
Land and Building 223,100
Equipment 75,000 c. Dr. Pref Shares 50,000
Cr CRA 50,000
Goodwill 28,500 @
Preliminary expenses 4,000 Dr. Ord Shares 350,000
Pref Shares 50,000
Inventories 57,000 Cr. CRA 400,000
Debtors 35,600
423,200 d. Dr Share Premium 84,200
Authorized and Cr CRA 84,200
fully paid capital
200,000 7% Pre. Share@RM1.00 200,000 e. Dr. Land & Building 9,400
500,000 Odr. Shares@RM1.00 500,000 Cr. CRA 9,400

Share premium 84,200 f. Dr. CRA 2,600

Profit & Loss Account (450,000) Cr. Equipment 2,600

Current Liabilities g. Dr. CRA 5,000

Creditors 65,000 Cr. Inventories 5,000
Bank Overdraft 24,000
423,200 h. Dr. CRA 3,500
Additional Information Cr. Debtors 3,500
The following scheme of reconstruction was agreed @
by all parties include shareholder and creditors and Dr. CRA 11,100
the required approvals received: Cr. Equipment 2,600
Inventories 5,000
1. The ordinary shares to be reduced to RM0.30 and Debtors 3,500
the preference share reduced to RM0.75
2. Share premium to be written off for the scheme i. Dr. CRA 28,500
3. Assets were revalued as follows: Cr. Goodwill 28,500
a. Land & Building RM232,500
b. Equipment RM 72,400 j. Dr. CRA 4,000
c. Inventories RM 52,000 Cr. Premilinary Exp 4,000
d. Debtors RM 32,100
4. To write off all the intangible assets and the profit k. Dr. CRA 450,000
and loss account Cr. Profit & Loss 450,000
5. The directors agreed to subscribe 200,000 @
ordinary shares of RM0.30. Cash received being Dr. CRA 482,500
used to settle the bank overdraft Cr. Goodwill 28,500
Premilitary Exp 4,000
You are required: Profit & Loss 450,0000
a. Journal entries
b. Capital reduction account (CRA) l. Dr. Bank 60,000
c. Balance sheet immediately after capital reduction Cr. Ord. Shares 60,000

Note:
1. Information no 1 will shows throughout items a
and b. Answer also can shows by combine Ord.
shares and Pref shares.
2. Assets increase will shows on debit side and
reduce shows on credit side. All assets
transaction shows on items d, e, f and g.

Answer 2 Capital Reduction Account

 RM RM 800,000 Ord shares@RM1.00 800,000
Equipment 2,600 Ord Shares 350,000 600,000 Pref Shares@RM1.00 600,000
Inventories 5,000 Pref Shares 50,000 1,400,000
debtors 3,500 Share Pre. 84,200 Issued and paid up capital
Profit 450,000 Land & 500,000 Ord shares@RM1.00 500,000
&Loss Building 9,400 100,000 5% Pref Shares@RM1.00 100,000
Goodwill 28,500
Preli. Exp 4,000 Share premium 50,000
493,600 493,600 Accumulated Profit (304,500)

Balance Sheet as at 31 December 2013 Long Term Liabilities

Non-current assets RM 14% debenture 54,500
Land and Building 232,500 400,000
Equipment 72,400 Additional Information:
1. The share premium account was utilized
Inventories 52,000 2. Investment was sold for RM33,000
Debtors 32,100 3. Assets to be revalued:
Bank 36,000 a. Land & Building RM259,000
425,000 b. Vehicle RM40,000
Authorized and c. Debtors RM34,000
fully paid capital d. Inventory RM21,000
200,000 7% Pre. Share@RM0.75 150,000 4. The preference shares were reduces to RM0.75
700,000 Odr. Shares@RM0.30 210,000 and ordinary shares to RM0.40. After reduction
the shares were consolidated to the ordinary
Current Liabilities shares of RM1.00
Creditors 65,000 5. The directors agreed to accepted ordinary share
425,000 in place their loan, and also agreed to subscribe
for RM50,000 in ordinary share
6. A further resolution was passed to restore the
Example 3 authorized capital to 500,000 ordinary shares of
Mutiara Trading Bhd got losses for a few years and RM1.00
unable to pay dividend to shareholders. The 7. A Creditor for RM30,000 has agreed to accept a
company propose restructure plan and get approval payment of RM0.95 in the RM1.00 for
from court. The following is a balance sheet as at 31 immediate settlement
December 2013. 8. All the intangible asset and profit & loss are to
written off
Mutiara Trading Bhd 9. One new ordinary shares of RM1.00 was issued
Balance Sheet as at 31 December 2013 for every RM5.00 of gross dividend preference
Non-Current Assets shares dividend. Preference shares dividend are
Land & Building 200,000 4 years in arrear.
Fixture and Fitting 35,000
Vehicle 50,000 You are required:
285,000 a. Journal entries
Investment 30,000 b. Capital reduction account (CRA)
c. Balance sheet immediately after capital reduction
Goodwill 100,000
Preliminary Expenses 5,000
420,000
Current Assets
Bank 2,000
Debtor 40,000
Inventory 30,000
72,000
Current Liability
Loan from Directors 52,000
Creditors 40,000
(92,000)
Working Capital (20,000)
400,000
Authorized Capital
Answer 3 Capital Reduction Account
a. Dr Share Premium 50,000 RM RM
Cr CRA 50,000 Vehicle 10,000 Ord Shares 300,000
Inventories 9,000 Pref Shares 25,00
b. Dr Bank 33,000 debtors 6,000 Share Pre. 50,000
Cr Investment 30,000 Profit &Loss 304,500 Land & 59,000
CRA 3,000 Building
Goodwill 100,000 investment 3,000
c. Dr. land & Building 59,000 Preli. Exp 5,000 Creditor 1,500
Cr. CRA 59,000 Ord shares 4,000
438,500 438,500
d. Dr. CRA 10,000
Cr. Vehicle 10,000
Mutiara Trading Bhd
e. Dr. CRA 6,000 Balance Sheet as at 31 December 2013
Cr. Debtor 6,000 Non-Current Assets
Land & Building 259,000
f. Dr. CRA 9,000 Fixture and Fitting 35,000
Inventory 9,000 Vehicle 40,000
286,000
g. Dr Preferences Shares 25,000 Current Asset
Ordinary Shares 300,000 Bank 56,500
Cr CRA 325,000 Debtor 34,000
Inventory 21,000
h. Dr Preference shares 75,000 111,500
Ordinary shares 200,000 Current Liability
Cr. Ordinary Shares 275,000 Creditor (10,000)
Working Capital 101,500
i. Dr. Loan Director 52,000 435,500
Cr Ordinary Share 52,000 Authorized Capital
800,000 Ord shares@RM1.00 800,000
j. Dr. Bank 50,000 600,000 Pref Shares@RM1.00 600,000
Cr Ordinary Shares 50,000 1,400,000
Issued and paid up capital
k. Dr. Creditor 30,000 381,000 Ord shares@RM1.00 381,000
Cr Bank 28,500
CRA 1,500 Long Term Liabilities
14% debenture 54,500
l. Dr CRA 409,500 435,500
Cr Profit & Loss 304,500
Goodwill 100,000
Preliminary expenses 5,000

m. Dr CRA 4,000
Cr. Ordinary shares 4,000
Question 1
Balance Sheet of A Bhd as at 31 December 2013 Answer 1
Non-Current Assets RM RM
Building 130,000 a. Dr CRA 21,000
Machinery 148,000 Cr Machinery 21,000
Accm.. Depreciation (79,000) 69,000 b. Dr CRA 83,000
Cr Profit & Loss Acct 68,000
Investment 32,000 Goodwill 12,000
Goodwill 12,000 Pre. Expenses 3,000
Preliminary Expenses 3,000 c. Dr Bank 36,000
Cr Investment 32,000
Debtors 28,000 CRA 4,000
Inventory 37,000 d. Dr CRA 14,000
311,000 Cr Inventory 11,000
Authorized and Fully Debtor 3,000
paid e. Dr Pref Shares 10,000
Ord. Shares@RM0.50 100,000 Cr CRA 10,000
5% Pref Shares@RM1.00 50,000
Profit and Loss (68,000) Dr Ord Shares 60,000
Cr CRA 60,000
10% Debentures (secured 100,000
on building) Dr CRA 2,000
Cr Ord Shares 2,000
Current Liabilities f. Dr Debenture 100,000
Creditors 43,000 Accr Deb Int 5,000
Bank Overdraft 81,000 Bank 95,000
Accrued Deb. Interest 5,000 Dr Building 70,000
311,000 Cr CRA 70,000
Capital Reduction Account
A Bhd has suffered serious losses in recent years and RM RM
the dividends on the preference share are now 2 years Machinery 21,000 Investment 4,000
in arrears. P&L 68,000 Ord Shares 60,000
Goodwill 12,000 Pref Shares 10,000
The necessary approval has just been given for the Pre. 3,000 Building 70,000
following capital reduction scheme: Expenses
a. The machinery is to be written down to Inventory 11,000
RM48,000 Debtor 3,000
b. The profit and loss account and all intangible Ord shares 2,000
assets are to be written off Reserve 24,000
c. Investment are be sold for RM36,000 144,000 144,000
d. Inventory with a book value RM11,000 and
debts of RM3,000 are to be written off Balance Sheet of A Bhd as at 31 December 2013
e. The nominal value of the preference share is to Non-Current Assets RM
be reduced to RM0.80 and the holder are to Machinery 48,000
receive 2 ordinary shares RM0.20 for every
RM1 of dividend arrears. Bank 50,000
f. The debenture holder is take over to the property Debtors 25,000
at valuation of RM200,000 and to pay the Inventory 26,000
company the balance cash. 149,000
g. The authorized share capital is to be change to Authorized
250,000 ordinary RM0.20 and 100,000 8% 250,000 Ord. Shar@RM0.20 50,000
preference RM0.80. 100,000 5% Pref
Shares@RM0.80 80,000
You are required 130,000
h. Journal Fully paid
ii. Capital Reduction Account Ord. Shares@RM0.20 42,000
iii. The balance sheet after completion of the 5% Pref Shares@RM0.80 40,000
scheme Reserve 24,000
 iii. The balance sheet after completion of the
Current Liabilities Scheme
Creditors 43,000 Answer 2
149,000 a.. Dr Pref Shares 27,500
Question 2 Cr CRA 27,500

Balance Sheet of B Bhd as at 31 December 2013 b. Dr Ord Shares 164,000

Non-Current Assets RM Cr CRA 164,000
Machine 75,600
Furniture 10,200 c.. Dr Capital Reserve 21,000
Cr CRA 21,000
Goodwill 80,000
d.. Dr Pref Shares 27,500
Current Assets Ord Shares 41,000
Debtors 26,700 Cr Ord Shares 68,500
Inventory 67,000
259,500 e.. Dr bank 65,000
Authorized Cr 8% debenture 65,000
Ord. Shares@RM0.50 350,000
7% Pref Shares@RM1.00 100,000 f.. Dr CRA 160,300
450,000 Cr Profit & Loss 56,300
Issued and Fully paid Goodwill 70,000
Ord. Shares@RM0.50 205,000 Machine 25,000
7% Pref Shares@RM1.00 55,000 Furniture 9,000

Profit and Loss (56,300) Note: statement (g) related with (e). No journal is
Capital Reserves 21,000 address
Capital Reduction Account
Current Liabilities RM RM
Creditors 15,600 P&L 56,300 Ord Shares 164,000
Bank Overdraft 19,200 Goodwill 70,000 Pref Shares 27,500
259,500 Machine 25,000 Capital 21,000
The following scheme of capital reduction was reserve
sanctioned by the court and agreed by the Furniture 9,000
shareholders: Reserve 52,200
a. Preference share were to be reduced to RM0.50 212,500 212,500
b. Ordinary share were to be reduced to RM0.10
c. The capital reserve was to be eliminated Balance Sheet of B Bhd as at 31 December 2013
d. The reduces shares of both classes were to be Non-Current Assets RM
consolidated into new ordinary share of RM1.00 Machine 50,600
e. An issue of RM65,000 8% debentures at par was Furniture 1,200
to be made to provide fresh working capital
f. The sum written off the issued capital of the Goodwill 10,000
company and the capital reserve to be used to
write off the debit balance of the profit and loss Current Assets
account and to reduce fixed asset by the Bank 45,800
following amounts: Debtors 26,700
• Goodwill 70,000 Inventory 67,000
• Machine 25,000 201,300
• Furniture 9,000 Authorized
g. The bank overdraft was to be paid off out of the Ord. Shares@RM1.00 400,000
proceeds of the debentures which were duly 400,000
issued and paid in full Issued and Fully paid
h. A further resolution was passed to restore the Ord. Shares@RM1.00 68,500
authorized capital of the company to 400,000
ordinary share of RM1 Reserves 52,200
8% Debenture 65,000
You are required Current Liabilities
i. Journal Creditors 15,600
ii. Capital Reduction Account 201,300
 Answer 3
Question 3
A Bhd was having financial difficulties for 4 years. 1. Dr Bank 560,000
The financial position is as follows: Cr Ord shares 560,000

Balance Sheet of A Bhd as at 30 September 2014 2. Dr CRA 160,000

Non-Current Assets RM Cr Ord shares 160,000
Land & Building 1,684,750
Furniture & Fitting 245,600 3. Dr CRA 367,270
Plant 359,800 Cr P & L 302,270
G/will 65,000
Investment 780,000 4.
Goodwill 65,000 5. Dr CRA 190,280
Cr F & F 41,480
Current Assets Plant 148,800
Debtors 264,780
Inventory 218,800 Dr L & B 566,550
3,618,730 Cr CRA 566,550
Issued and Fully paid
2,800,000 Ord Shares@ RM1.00 2,240,000 6. Dr Loan 285,000
10% Pref Shares@RM1.00 800,000 Cr Ord Shares 114,000
CRA 171,000
Profit and Loss (302,270)
7. Dr Bank 400,000
Current Liabilities Cr Ord Shares 400,000
Creditors 440,000
Bank Overdraft 156,000
Loan from Directors 285,000 Capital Reduction Account
3,618,730 RM RM
Note: Ord shares 160,000 L & B 566,550
i. There were contingency liabilities of RM13,560 P&L 302,270 Loan 171,000
ii. The preference share dividends were 2 years in G/will 65,000
arrears F&F 41,480
Plant 148,800
The following scheme of capital reduction was Reserve 20,000
agreed upon: 737,550 737,550
1. It was decided to call the uncalled ordinary
shares of RM0.20 each for cash Balance Sheet of A Bhd as at 30 September 2014
2. The preferences shareholder agreed to accept Non-Current Assets RM
160,00 ordinary shares of RM1.00 each for Land & Building 2,251,300
settlement on the dividends in arrears Furniture & Fitting 204,120
3. Accumulated loss and intangible assets were to Plant 211,000
be written off
4. The fair value of assets were as follows: Investment 780,000
a. Furniture & Fittings RM204,120
b. L & B RM2,251,300 Current Assets
c. Plant RM211,000 Bank 804,000
5. The loan from directors was to be settled by Debtors 264,780
ordinary shares at 40% on the total amount Inventory 218,800
owed. 4,734,000
6. 400,000 ordinary shares were to be issued to the Issued and Fully paid
public for cash 2,800,000 Ord Shares@ RM1.00 3,474,000
10% Pref Shares@RM1.00 800,000
You are required to prepare the following:
a. Journal entries Reserve 20,000
b. Statement of financial position Current Liabilities
immediately after completion of Creditors 440,000
scheme 4,734,000
Question 1 (Q3) Question 2 (Q5)

Given below is the statement of financial position of B Bhd received approval from all parties to undergo
A Bhd. a capital reduction scheme. The following are the
company`s financial statement.as at 31 December
Balance Sheet of A Bhd as at 30 September 2014 2011.
Non-Current Assets RM Non-Current Assets RM
Land & Building 243,000 Land 318,590
Plant & Machinery 64,500 Building 184,000
Office equipment 98,000
Preliminary expenses 20,000 Fixture & Fitting 49,500
Research & Development 54,000
Current Assets Goodwill 55,500
Debtors 28,000 Royalties 28,500
Inventory 31,000
440,500 Current Assets
Issued and Fully paid Debtors 34,250
300,000 Ord Shares@ RM1.00 300,000 Inventory 28,760
8% Pref Shares@RM1.00 120,000 797,100
Issued and Fully paid
Profit and Loss (88,000) 300,000 Ord Shares@ RM1.00 300,000
Share premium 34,500 10% Pref Shares@RM1.00 280,000
Current Liabilities Share premium 106,000
Creditors 34,000 Profit and Loss (127,000)
Bank Overdraft 40,000
440,500 Current Liabilities
Creditors 54,700
Note: preference share dividend were 2 years in Bank Overdraft 65,400
arrears
The restructuring scheme is as follows: Director loan 118,000
a. The 8 % preference shares are to be reduced to 797,100
RM0.70 per share and ordinary share are to be The following are the terms for the capital reduction
reduced to RM0.60 per share scheme:
b. RM40,980 of research and development is to be a. Ordinary shares shall be reduced to RM0.60 per
written off share and 10% preference shares to RM0.55.
c. Preliminary expenses and accumulated loss are After the reduction both classes of shares shall
to be written off be consolidated into ordinary shares@RM1.00
d. Two units ordinary shares shall be issued for each
every RM2.00 preference share dividend in b. Preferences shareholder will receive one unit of
arrears ordinary share for every RM2 in arrears.
e. Share premium is to be utilized for the scheme c. Assets being revaluated are as follows
f. The fair value for plant & machinery is a. Land 329,000
RM34,500 b. Building 135,000
c. Office Equp 68,000
You are required to prepare the following: d. Fixtures & Fur 31,000
a. Journal entries e. Inventory obsolete 3,000
b. Statement of financial position f. Debtors bad debts 5,600
immediately after completion of d. Losses and all intangible assets shall be
scheme eliminated. The share premium account is to be
used for the scheme
e. 200,000 ordinary share shall be issued 50%
shall be used make a full settlement of the
director loan and the balance to overcome the
bank overdratf

You are required to prepare the following:

a. Journal entries
b. Statement of financial position
immediately after completion of
scheme
Question 3 (Q8)

Given below is the statement of financial position of

D Bhd as at 31 October 2014
Non-Current Assets RM
Freehold properties 313,253
Plant and machinery 124,322
Furniture & Fittings 78,977
Motor Vehicle 69,800
Investment 32,120

Current Assets
Debtors 43,558
Inventory 43,870
705,900
Issued and Fully paid
390,000 Ord Shares@ RM1.00 390,000
10% Pref Shares@RM1.00 188,000
Profit and Loss (222,430)

Non-current liabilities
7% Debentures 140,000

Current Liabilities
Creditors 65,984
Bank Overdraft 134,546
Accrued debentures interest 9,800
705,900
Subsequent to the approval of a scheme by the court
for the reduction of capital the following steps were
taken:
a. The investment was sold and a profit of
RM12,239 was gained.
b. Freehold properties at book value of
RM120,450 were revalued to RM199,760 and
were taken over by debenture holders as full
settlement. The remaining cash was returned to
the company. The balance of freehold properties
were revalued at RM154,940
c. The ordinary shares were reduced to RM0.45
each and 8% preference shares were reduced by
RM0.35 each
d. RM45,632 trade payable were paid with
ordinary shares
e. The fair value of assets were as follow:
a. Plant and machinery 66,557
b. Fur & Fitt 54,284
c. Motor vehicle 49,800
d. Inventory reduced at 8%
e. Debtors reduced at 13%
f. 100,000 ordinary shares were issued at RM0.65
and fully paid
g. The losses appearing in the financial statement
were written off

You are required to prepare the following:

a. Journal entries
b. Statement of financial position
immediately after completion of
scheme.