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CS Professional · Corporate Restructuring, Valuation and Insolvency · Types of Corporate Restructuring

Rao Pharma Ltd has equity share capital of Rs 50 crore, with 5 crore shares of Rs 10 each, and accumulated losses of Rs 30 crore. Under a reduction scheme, the capital is reduced so that the entire accumulated loss is written off by reducing each share's face value, then the shares are consolidated so face value is restored to Rs 10. How many shares exist after the whole exercise?

Two crore shares remain. Writing off Rs 30 crore leaves capital of Rs 20 crore. Restoring the face value to Rs 10 through consolidation means Rs 20 crore divided by Rs 10, which gives 2 crore shares, equal to five old shares becoming two new shares.

  1. A2 crore shares
  2. B3 crore sharesCorrect
  3. C3.5 crore shares
  4. D5 crore shares

Explanation

Capital after write-off = Rs 50 crore - Rs 30 crore = Rs 20 crore. With face value restored to Rs 10 by consolidation, shares = 20 crore / 10 = 2 crore. Check: reduction per share is Rs 6, so face value becomes Rs 4; consolidating 5 old shares into 2 new gives Rs 10 each, and 5 crore x 2/5 = 2 crore. So the correct figure is 2 crore, and option 3 crore results from subtracting only part of the loss.

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