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CA Intermediate · Advanced Accounting · Internal Reconstruction

Anand Ltd has 40,000 equity shares of Rs 10 each fully paid. Under a reconstruction scheme: shares are reduced to Rs 4 each; a liability of Rs 50,000 is to be newly provided; plant (book value Rs 3,00,000) is written down by 30%; the debit balance of Statement of Profit and Loss is Rs 1,20,000; and a debenture holder with Rs 1,00,000 debentures accepts Rs 70,000 in full settlement. What is the balance in Capital Reduction Account after all adjustments?

Credits are Rs 2,40,000 of share capital reduction plus Rs 30,000 debenture waiver, totalling Rs 2,70,000. Debits are Rs 50,000 liability, Rs 90,000 plant write-down and Rs 1,20,000 loss, totalling Rs 2,60,000. The balance is Rs 10,000 credit.

  1. ARs 10,000 creditCorrect
  2. BRs 2,60,000 credit
  3. CRs 40,000 credit
  4. DRs 10,000 debit

Explanation

Credits: 40,000 x 6 = 2,40,000 plus debenture sacrifice 30,000 = 2,70,000. Debits: liability 50,000 + plant 30% of 3,00,000 = 90,000 + loss 1,20,000 = 2,60,000. Balance = Rs 10,000 credit. Ignoring the debenture sacrifice gives a debit of Rs 20,000.

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