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CA Intermediate · Advanced Accounting · Internal Reconstruction

Kaveri Ltd has 30,000 equity shares of Rs 10 each fully paid. Under a reconstruction scheme, these are reduced to Rs 6 each. Debenture holders owed Rs 2,00,000 agree to accept Rs 1,50,000 in full settlement. Accrued debenture interest of Rs 20,000 is waived. What total amount is credited to Capital Reduction Account from these three items?

The credit is Rs 1,90,000. Share capital reduction is 30,000 x Rs 4 = Rs 1,20,000, the debenture settlement gain is Rs 50,000, and the waived interest is Rs 20,000. All three are sacrifices by claimants and are credited to Capital Reduction Account.

  1. ARs 1,90,000Correct
  2. BRs 1,20,000
  3. CRs 1,70,000
  4. DRs 2,20,000

Explanation

Equity reduction = 30,000 x 4 = Rs 1,20,000. Debenture sacrifice = 2,00,000 - 1,50,000 = Rs 50,000. Interest waiver = Rs 20,000. Total = 1,20,000 + 50,000 + 20,000 = Rs 1,90,000. Rs 1,70,000 omits the interest waiver. Rs 1,20,000 counts only the share reduction.

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