CA Intermediate · Advanced Accounting · Internal Reconstruction
Meera Textiles Ltd has an accumulated debit balance in Profit and Loss Account of Rs 6,00,000, preliminary expenses of Rs 40,000 and a patent shown at Rs 1,60,000. Under a scheme of internal reconstruction, the company decides to write off all fictitious assets and losses and to write off the patent entirely. What is the total amount to be debited to the Capital Reduction Account?
The Capital Reduction Account is debited with Rs 8,00,000, being the sum of the profit and loss debit balance of Rs 6,00,000, preliminary expenses of Rs 40,000 and the patent of Rs 1,60,000, since all these losses and assets are written off under the scheme.
- ARs 6,40,000
- BRs 8,00,000Correct
- CRs 7,60,000
- DRs 6,00,000
Explanation
Fictitious assets and accumulated losses are the profit and loss debit balance (6,00,000) and preliminary expenses (40,000). The patent is also written off (1,60,000). Total = 6,00,000 + 40,000 + 1,60,000 = 8,00,000. Rs 6,40,000 omits the patent; Rs 7,60,000 omits preliminary expenses.
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