CA Intermediate · Advanced Accounting · Internal Reconstruction
Kaveri Ltd has 10,000 10% preference shares of Rs 100 each and 40,000 equity shares of Rs 10 each, all fully paid. Under a scheme, preference shares are reduced by 30% and equity shares are reduced to Rs 2.50 each. Total amount available in Capital Reduction Account from these two reductions is:
The total credit to Capital Reduction Account is Rs 6,00,000. Preference capital of Rs 10,00,000 reduced by 30% gives Rs 3,00,000, and equity reduced by Rs 7.50 on 40,000 shares gives another Rs 3,00,000.
- ARs 3,00,000
- BRs 6,00,000Correct
- CRs 4,00,000
- DRs 3,00,000 + Rs 3,00,000 = Rs 6,00,000 less Rs 1,00,000
Explanation
Preference: 10,00,000 x 30% = Rs 3,00,000. Equity: 40,000 x (10 - 2.50) = 40,000 x 7.50 = Rs 3,00,000. Total Rs 6,00,000. Counting only one class gives Rs 3,00,000, the common error of omitting a class.
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