CA Intermediate · Advanced Accounting · Internal Reconstruction
Narmada Ltd has 10,000 equity shares of Rs 100 each fully paid. Under a scheme, each share is reduced to Rs 40 fully paid. Creditors of Rs 3,00,000 agree to take 2,000 new equity shares of Rs 40 each (fully paid) plus Rs 1,00,000 cash, in full settlement. What is the amount credited to Capital Reduction Account on account of creditors alone?
The creditors' sacrifice is Rs 1,20,000. They are settled with shares worth Rs 80,000 and cash of Rs 1,00,000, totalling Rs 1,80,000, against a claim of Rs 3,00,000. The Rs 1,20,000 difference is credited to Capital Reduction Account.
- ARs 1,20,000Correct
- BRs 2,00,000
- CRs 3,00,000
- DRs 80,000
Explanation
Settlement value = 2,000 x 40 = Rs 80,000 in shares plus Rs 1,00,000 cash = Rs 1,80,000. Sacrifice = 3,00,000 - 1,80,000 = Rs 1,20,000. Rs 2,00,000 wrongly deducts only cash. Rs 80,000 is the share value only.
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