presentation on internal reconstruction
TRANSCRIPT
INTERNAL
RECONSTRUCTION
What is
Reconstruction...???
Types of Reconstruction
ExternalReconstructio
n
Internal Reconstruction
Basic Journal Entries-
20,000 Equity Shares of Rs. 10 each is reduced to Rs. 6 each.
Equity Share Capital A/c (10) …Dr 2,00,000
To Equity Share Capital A/c (6) 1,20,000 To Capital Reduction A/c (4) 80,000
20,000 Equity Shares of Rs. 10 each is reduced by Rs. 6 each.
Equity Share Capital A/c (10) …Dr 2,00,000
To Equity Share Capital A/c (4) 80,000 To Capital Reduction A/c (6) 1,20,000
20,000 Equity Shares of Rs. 10 each is reduced to a paid up value of Rs. 4, face-value remaining unchanged.
Equity Share Capital A/c …Dr 1,20,000 To Capital Reduction A/c 1,20,000 (20,000 x 6)
Debenture holders take over a property of Rs. 10,000 for Rs. 15,000 and provide Rs. 5,000 on floating charge on rest of the assets.
(i) Debentures A/c …Dr 15,000
To Property A/c 10,000 To Capital Reduction A/c 5,000(ii)Cash A/c …Dr
5,000
To Debentures A/c 5,000
Damages of Rs. 10,000 materialized to the full extent, but amount of Rs. 4,000 is recovered from the director who was responsible for that. The amount was adjusted against director’s loan of Rs. 15,000. The remaining director’s agreed to settle the loan with equity shares.
(i) Capital Reduction A/c …Dr 6,000 Director’s Loan A/c …Dr 4,000
To Cash A/c 10,000(ii) Director’s Loan …Dr 11,000
To Equity Share Capital A/c 11,000
Creditors agreed to reduce their claims to the extent of 20% on the condition that 40% of the remaining is paid off immediately and rest after 2 years with 10% interest. Creditors is of Rs. 1,00,000.
(i) Creditors A/c …Dr 20,000
To Capital Reduction A/c 20,000
(ii)Creditors A/c …Dr 32,000
To Cash A/c 32,000
Arrears of Preference Dividend:
o If it is not paid - No Entry
o If it is paid -
Capital Reduction A/c …Dr To Cash A/c
(Note: Preference Dividend paid is a loss to the extent paid off.)
All the fictitious assets are to be written off (even if not specified in the sum). Capital Reduction A/c …Dr
To Fictitious assets A/c
Outstanding interest on debentures is waived off.
Outstanding Interest A/c …Dr To Capital Reduction A/c Reconstruction expenses incurred.
Capital Reduction A/c …Dr To Cash A/c
If any reserves is to be utilized for reconstruction scheme.
Any Reserves A/c …Dr To Capital Reduction A/c
Sale of asset at profit or loss.
(i)In case of profit-
Cash A/c …Dr
To Asset A/c To Capital Reduction A/c (ii) In case of loss-
Cash A/c …Dr Capital Reduction A/c …Dr
To Asset A/c
LIABILITIES Rs. ASSETS Rs.
Share capital:Authorized, Issued & Fully paid up:80000 6% Cumulative Preference shares of Rs. 10 each150000 Equity shares of Rs. 10 each
Secured loan:6% Debenture (secured on freehold property) 750000 Accrued interest 45000Unsecured loans:Directors 200000Overdraft 390000Current liabilities:Creditors
800000
15000002300000
Fixed assets:Freehold propertyPlantPatentsGoodwillTrade investments (at cost)Current assets:DebtorsStockDeferred AdvertisementProfit & Loss A/c
850000100000 75000260000110000
970000850000200000870000
4285000 4285000
Q. The summarized balance sheet of enterprises Ltd. as on March 31, 1990 was as follows:
795000
590000
600000
Note:
The preference dividends are four years in arrears. There are capital commitments totaling Rs. 500000
The court approved a scheme of re-organization, submitted by the debenture holders and agreed by other interested parties to take effect on 1st April, 1987 whereby:
The preference shares to be written down to Rs. 7.50 each and equity shares to Rs. 2 each, each class of shares than to be converted into shares of Rs.10 each.
Of the preference dividend in arrears, three fourths to be waived and equity shares to be allotted at par for remaining one fourth.
The debentures holders to have their accrued interest paid in cash to take over freehold property (book value Rs. 200000) at a valuation of Rs. 240000 in part repayment of their holdings and provide additional cash of Rs. 260000 secured by floating charge on the company’s assets at an interest rate of 8%.
Patents, goodwill and deferred advertising to be written off, Rs. 130000 to be written off for stock, Rs. 137000 to be provided for bad debts and remaining freehold property to be revalued at Rs. 775000.
The trade investments to be sold for Rs. 280000.
The directors accept settlement of their loans as to 90% thereof by allotment of equity shares at par and as to 5% being waived.
The contracts for capital expenditure to be called off an payment of 5% of the contract price as a penalty.
The preference shares to be written down to Rs. 7.50 each and equity shares to Rs. 2 each, each class of shares than to be converted into shares of Rs.10 each.o Preference share capital A/c …Dr 8,00,000
To Preference share capital A/c 6,00,000 To Capital reduction A/c 2,00,000o Equity share capital A/c …Dr 15,00,000
To Equity share capital A/c 3,00,000 To Capital reduction A/c 12,00,000
SOLUTION:
o Equity share capital A/c …Dr 3,00,000 To Equity share capital A/c 3,00,000 Of the preference dividend in arrears, three fourths to be waived and equity shares to be allotted at par for remaining one fourth.
o Capital reduction A/c …Dr 48,000 To Equity share capital A/c 48,000
o Preference share capital A/c …Dr 6,00,000 To preference share capital A/c 6,00,000
The debentures holders to have their accrued interest paid in cash to take over freehold property (book value Rs. 200000) at a valuation of Rs. 240000 in part repayment of their holdings and provide additional cash of Rs. 260000 secured by floating charge on the company’s assets at an interest rate of 8%.
o Debenture A/c …Dr 2,40,000
To Freehold property A/c 2,00,000 To Capital reduction A/c 40,000o Cash A/c …Dr 2,60,000
To 8% Debentures A/c 2,60,000
o Interest A/c …Dr 45,000 To Cash A/c 45,000
Patents, goodwill and deferred advertising to be written off, Rs. 130000 to be written off for stock, Rs. 137000 to be provided for bad debts and remaining freehold property to be revalued at Rs. 775000.o Capital reduction A/c …Dr 16,72,000
To Goodwill A/c 2,60,000 To patents A/c 75,000 To Deferred Advertising A/c 2,00,000 To Stock A/c 1,30,000 To Debtors A/c 1,37,000 To Profit & loss A/c 8,70,000
o Freehold property A/c …Dr 1,25,000
To Capital reduction A/c 1,25,000
The trade investments to be sold for Rs. 280000.
o Bank A/c …Dr 2,80,000
To Investments A/c 1,10,000 To Capital reduction A/c 1,70,000
The directors accept settlement of their loans as to 90% thereof by allotment of equity shares at par and as to 5% being waived.
o Directors A/c …Dr 2,00,000
To Equity share capital A/c 1,80,000 To Cash A/c 10,000 To Capital reduction A/c 10,000
o Capital Reduction A/c …Dr 25,000
To Cash/Bank A/c 25,000
The contracts for capital expenditure to be called off on payment of 5% of the contract price as a penalty.
Particulars. Amount
(Rs.)
Particulars Amount
(Rs.)To Equity Share Capital A/c 48,000 By Preference Share Cap. A/c 2,00,000
To Goodwill A/c 2,60,000 By Equity Share Capital A/c 12,00,000
To Patents A/c 75,000 By 6% Debentures A/c 40,000
To Deferred Advertisement A/c 2,00,000 By Free-Hold Property A/c 1,25,000
To Stock A/c 1,30,000 By Bank A/c 1,70,000
To Debtors A/c 1,37,000 By Director’s A/c 10,000
To Profit & Loss A/c 8,70,000
To Bank A/c 25,000
17,45,000
17,45,000
Capital Reduction A/cDr. Cr.
Liabilities Amount(Rs.)
Assets Amount(Rs.)
Issued, Subscribed and Paid up Capital
Fixed Assets
60,000 6%Preference Shares of Rs. 10 each
6,00,000 Free-Hold Property 7,75,000
52,800 Equity Shares of Rs. 10 each
5,28,000 Plant 1,00,000
Secured Loan Current Assets, Loans and Advances
6% Debentures 5,10,000 Stock 7,20,000
8% Debentures 2,60,000 Debtors 8,33,000Cash/Bank 70,000
Current Liabilities, Loans and AdvancesCreditors 6,00,000
24,98,000 24,98,000
BALANCE SHEET AS ON 31st MARCH 1990