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CA Intermediate · Advanced Accounting · Internal Reconstruction

Kaveri Industries Ltd has 50,000 equity shares of Rs 10 each fully paid. Under a reconstruction scheme, each share is reduced to Rs 4 fully paid, and the shares are then consolidated back to Rs 10 face value shares (fully paid) by the company. Assume only the reduction is accounted for first. What is the credit to Capital Reduction Account arising from the reduction of the shares, and what is the number of Rs 10 shares after consolidation?

The reduction is Rs 6 per share on 50,000 shares, so Rs 3,00,000 is credited to Capital Reduction Account. The remaining capital of Rs 2,00,000 consolidated into Rs 10 shares gives 20,000 shares.

  1. ARs 3,00,000 and 20,000 sharesCorrect
  2. BRs 3,00,000 and 50,000 shares
  3. CRs 2,00,000 and 20,000 shares
  4. DRs 3,00,000 and 30,000 shares

Explanation

Reduction per share = 10 - 4 = 6, so credit = 50,000 x 6 = 3,00,000. Capital after reduction = 50,000 x 4 = 2,00,000. Consolidated into Rs 10 shares gives 2,00,000 / 10 = 20,000 shares. Rs 2,00,000 mistakes the capital left for the reduction credit.

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