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CA Intermediate · Advanced Accounting · Internal Reconstruction

Nirmal Polymers Ltd approved a reconstruction scheme: (i) 50,000 equity shares of ₹100 each, fully paid, reduced to ₹40 each; (ii) 10,000 8% preference shares of ₹100 each reduced to ₹75 each; (iii) creditors of ₹6,00,000 agree to forgo 20% of their claims; (iv) land is revalued upwards by ₹1,50,000. The balance in the Capital Reduction Account is used to write off: Profit and Loss debit balance ₹22,00,000, goodwill ₹4,00,000, plant reduction ₹3,00,000, inventory reduction ₹1,50,000, and a legal claim settled in cash ₹2,00,000 (not previously provided). What is the balance transferred to Capital Reserve?

The Capital Reserve is ₹2,70,000. Total credits are ₹35,20,000 (equity ₹30,00,000, preference ₹2,50,000, creditors ₹1,20,000, land ₹1,50,000). Total debits are ₹32,50,000 for losses, goodwill, asset write-downs and the legal claim. The surplus goes to Capital Reserve.

  1. A₹2,70,000Correct
  2. B₹1,20,000
  3. C₹1,50,000
  4. D₹4,70,000

Explanation

Credits: equity 50,000 × 60 = 30,00,000; preference 10,000 × 25 = 2,50,000; creditors 20% × 6,00,000 = 1,20,000; land 1,50,000; total ₹35,20,000. Debits: 22,00,000 + 4,00,000 + 3,00,000 + 1,50,000 + 2,00,000 = ₹32,50,000. Balance = ₹2,70,000. ₹1,20,000 results from omitting the land upward revaluation; ₹4,70,000 from omitting the legal claim.

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