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CA Intermediate · Advanced Accounting · Internal Reconstruction

Meenakshi Foods Ltd has 40,000 equity shares of ₹10 each fully paid and 10,000 7% preference shares of ₹10 each fully paid. Its reconstruction scheme provides: (i) equity shares reduced to ₹4 each; (ii) preference shares reduced to ₹8 each; (iii) the director's loan of ₹50,000 is waived; (iv) a disputed claim of ₹30,000, earlier a contingent liability, is now to be accepted in full as a liability. Losses to be written off: Statement of Profit and Loss debit ₹1,80,000, preliminary expenses ₹10,000, goodwill ₹30,000, and plant reduced by ₹40,000. What is the balance in the Capital Reduction Account, after all the above adjustments, to be transferred to Capital Reserve?

₹20,000 is transferred to Capital Reserve. The credits are ₹2,40,000 from equity reduction, ₹20,000 from preference reduction and ₹50,000 from the waived loan, totalling ₹3,10,000. The debits for losses, write-downs and the accepted claim total ₹2,90,000, leaving ₹20,000.

  1. A₹20,000Correct
  2. B₹50,000
  3. CNil
  4. D₹30,000

Explanation

Credits: equity 40,000 × 6 = 2,40,000; preference 10,000 × 2 = 20,000; director's loan waiver 50,000; total ₹3,10,000. Debits: 1,80,000 + 10,000 + 30,000 + 40,000 + 30,000 (claim crystallised) = ₹2,90,000. Balance = ₹20,000. ₹50,000 results from forgetting to debit the crystallised claim; nil results from ignoring the preference reduction.

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