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CMA Final · Corporate Financial Reporting · Internal Reconstruction (Capital Reduction)

A company reduces 8,000 equity shares of Rs 50 each to Rs 20 each. It issues the shareholders no new assets and uses the reduction to write off accumulated losses of Rs 1,80,000 and plant overvalued by Rs 60,000. What is the balance of Capital Reduction Account after these adjustments?

The Capital Reduction Account balance is nil. The reduction of Rs 30 on 8,000 shares gives Rs 2,40,000, exactly equal to the accumulated losses of Rs 1,80,000 plus the Rs 60,000 plant write-down, so the account is fully absorbed.

  1. ACredit Rs 2,40,000
  2. BDebit Rs 2,40,000
  3. CNilCorrect
  4. DCredit Rs 0.60 lakh

Explanation

Reduction = 8,000 x 30 = Rs 2,40,000 credited. Write-offs = 1,80,000 + 60,000 = Rs 2,40,000 debited. Net balance is nil, so the account closes fully.

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