CA Intermediate · Advanced Accounting · Internal Reconstruction
Mahalakshmi Steels Ltd has 10% debentures of ₹6,00,000 and outstanding debenture interest of ₹60,000 in its books. Under the reconstruction scheme, the debenture holders accept in full settlement new debentures of ₹5,00,000 and fully paid equity shares of ₹60,000 face value. What amount is the sacrifice by the debenture holders, to be credited to Reconstruction account?
The sacrifice is ₹1,00,000. The company owed ₹6,60,000 including accrued interest and settles it with ₹5,60,000 of new debentures and shares, so the difference is credited to Reconstruction account. Ignoring either the interest or the shares gives a wrong figure.
- A₹1,00,000Correct
- B₹40,000
- C₹1,60,000
- D₹60,000
Explanation
Liability extinguished = ₹6,00,000 + ₹60,000 = ₹6,60,000. Consideration given = ₹5,00,000 + ₹60,000 = ₹5,60,000. Sacrifice = ₹1,00,000. ₹40,000 ignores the interest liability; ₹1,60,000 ignores the shares issued.
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