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CA Intermediate · Advanced Accounting · Internal Reconstruction

Kaveri Engineering Ltd has 50,000 equity shares of ₹10 each fully paid. Under a reconstruction scheme, each share is reduced to ₹4 fully paid. The scheme also requires: writing off the debit balance of the Statement of Profit and Loss ₹1,20,000, writing off goodwill ₹40,000 and reducing plant by ₹90,000. After these adjustments, what amount is transferred from the Capital Reduction Account to Capital Reserve?

₹50,000 is transferred to Capital Reserve. The reduction of 50,000 shares by ₹6 each gives a credit of ₹3,00,000. The write-offs of profit and loss debit, goodwill and plant total ₹2,50,000. The difference of ₹50,000 is the capital profit transferred to Capital Reserve.

  1. A₹2,50,000
  2. B₹50,000Correct
  3. C₹1,50,000
  4. D₹3,00,000

Explanation

Credit to Capital Reduction Account = 50,000 × (10 − 4) = ₹3,00,000. Debits: 1,20,000 + 40,000 + 90,000 = ₹2,50,000. Balance = 3,00,000 − 2,50,000 = ₹50,000 to Capital Reserve. ₹2,50,000 is the total of the write-offs, not the balance left over.

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