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    Problem No.: 1 (March 2018) Assets : Solution.: - Capital Reduction A/C

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    Anshr
    The document provides details of the balance sheet of Prathamesh Ltd. as of March 31, 2016 and the scheme of reconstruction approved and implemented. The key steps in the scheme were: 1) Equity shares were reduced to Rs. 1.25 each and then consolidated to Rs. 10 each. 2) Preference shares were reduced to Rs. 40 each and subdivided to Rs. 10 each. 3) Rs. 48,000 was paid to preference shareholders for dividend arrears. 4) Debentures were exchanged for new debentures. 5) Bank took stock in settlement of its claim. Remaining stock was revalued. 6) Investments were sold. 7) Fixed assets were

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    Problem No.: 1 (March 2018) Assets : Solution.: - Capital Reduction A/C

    Uploaded by

    Anshr
    22 views3 pages
    The document provides details of the balance sheet of Prathamesh Ltd. as of March 31, 2016 and the scheme of reconstruction approved and implemented. The key steps in the scheme were: 1) Equity shares were reduced to Rs. 1.25 each and then consolidated to Rs. 10 each. 2) Preference shares were reduced to Rs. 40 each and subdivided to Rs. 10 each. 3) Rs. 48,000 was paid to preference shareholders for dividend arrears. 4) Debentures were exchanged for new debentures. 5) Bank took stock in settlement of its claim. Remaining stock was revalued. 6) Investments were sold. 7) Fixed assets were

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    The document provides details of the balance sheet of Prathamesh Ltd. as of March 31, 2016 and the scheme of reconstruction approved and implemented. The key steps in the scheme were: 1) Equity shares were reduced to Rs. 1.25 each and then consolidated to Rs. 10 each. 2) Preference shares were reduced to Rs. 40 each and subdivided to Rs. 10 each. 3) Rs. 48,000 was paid to preference shareholders for dividend arrears. 4) Debentures were exchanged for new debentures. 5) Bank took stock in settlement of its claim. Remaining stock was revalued. 6) Investments were sold. 7) Fixed assets were

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    22 views3 pages

    Problem No.: 1 (March 2018) Assets : Solution.: - Capital Reduction A/C

    Uploaded by

    Anshr
    The document provides details of the balance sheet of Prathamesh Ltd. as of March 31, 2016 and the scheme of reconstruction approved and implemented. The key steps in the scheme were: 1) Equity shares were reduced to Rs. 1.25 each and then consolidated to Rs. 10 each. 2) Preference shares were reduced to Rs. 40 each and subdivided to Rs. 10 each. 3) Rs. 48,000 was paid to preference shareholders for dividend arrears. 4) Debentures were exchanged for new debentures. 5) Bank took stock in settlement of its claim. Remaining stock was revalued. 6) Investments were sold. 7) Fixed assets were

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    of 3

    Problem No.

    : 1 (March 2018)
    st
    Following is the Balance Sheet of Prathamesh Ltd. as on 31 March 2016 :
    Liabilities ₹ Assets ₹
    Shares Capital : 16,00,000 Goodwill 6,80,000
    3,20,000 equity shares of ₹ 5 each Land & Building 5,20,000
    fully paid Equipments 5,00,000
    8,000 8% cumulative preference s Sundry Debtors 4,81,940
    hares of ₹ 100 each fully paid 8,00,000 Stock 6,60,680
    8% debentures (₹ 100 each) 8,00,000 Investment 90,900
    Bank overdraft 3,00,000 Cash & Bank 40,480
    Sundry Creditors 6,80,720 Profit & Loss Accounts 12,06,720
    (including ₹ 40,000 interest due on
    bank overdraft)
    41,80,720 41,80,720

    Note : Preference Dividends are in arrears for five years.


    The following scheme of reconstruction was approved & implemented :
    1. Equity shares be reduced to ₹ 1.25 each and then to be consolidated into equity shares of ₹ 10 each.
    2. 8% preference shares be reduced to ₹ 40 each and then to be subdivided into shares of ₹ 10 each.
    3. ₹ 48,000 be paid to preference shareholders in lieu of arrears of preference dividend.
    4. The debenture holders have also agreed to accept equal number of 9% debentures of ₹ 60 each in exc
    hange of 8% debentures of ₹ 100 each.
    5. Bank has agreed to take over 50% of stock in full satisfaction of its claim including interest. The rem
    aining stock be revalued at ₹ 2,40,000.
    6. Investments are sold for ₹ 80,000.
    7. Tangible fixed assets to be appreciated by 20%, Goodwill to be written off and provision to be made
    for doubtful debts of ₹ 40,000.

    Pass necessary journal entries in the books of Prathamesh Ltd to record the above transactions.

    Solution. :

    Dr. Cr.

    Capital Reduction A/C


    Particular ₹ Particular ₹
    To Liabilities [Paid Dividend] 48,000 By Equity shares 12,00,000
    To Investment 10,900 By Preference shares 4,80,000
    To Goodwill w/f 6,80,000 By 8% Debentures 3,20,000
    To R.D.D 40,000 By Bank overdraft 9,660
    To Profit & loss A/C 12,06,720 By Land & Building 1,04,000
    To Stock 90,340 By Equipment 1,00,000

    To Capital Reserve 1,37,700


    22,13,660 22,13,660

    Journal Entries In The Books Of Prathamesh Ltd.

    Sr.no Particular Dr. ₹ Cr. ₹


    1 Equity Shares
    Equity shares A/C Dr 12,00,000
    To Capital Reduction A/C 12,00,000

    Old Equity Shares capital A/C Dr 4,00,000


    To New Equity shares capital A/C 4,00,000
    2 Preference Shares
    Old Prefrence Shares capital A/C Dr 8,00,000
    To New Prefrence Shares capital A/C 4,80,000
    To Capital Reduction A/C 3,20,000
    3 Paid Dividend
    Capital Reduction A/C Dr 48,000
    To Liabilitie [Paid Devidend] A/C 48,000
    4 Debenture
    8% Debentures A/C Dr 8,00,000
    To 9% Debentures A/C 4,80,000
    To Capital Reduction A/C 3,20,000

    5 Bank overdraft
    Bank overdraft A/C Dr 3,00,000
    Sundry Creditors A/C Dr 40,000
    To 50% Settlement A/C 3,30,340
    To Capital Reduction A/C 9,660
    5.B Stock revalue
    Capital Reduction A/C Dr 90,340
    To Stock A/C 90,340
    6 Investment Sold
    Capital reduction A/C Dr 10,900
    Cash & Bank A/C Dr 80,000
    To Investment A/C 90,900
    7 Tangible Fixed Assets Appreciated
    Land & Building A/C Dr 1,04,000
    Equipment A/C Dr 1,00,000
    To Capital reduction A/C Dr 2,04,000
    7.B Goodwill w/f & made doubtful debts
    Capital reduction A/C Dr 7,20,000
    To Goodwill A/C 6,80,000
    To R.D.D 40,000
    8 Profit & loss Balance transfer
    Capital reduction A/C Dr 12,06,720
    To Profit & loss A/C 12,06,720

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