CA Intermediate · Advanced Accounting · Internal Reconstruction
Rohini Plastics Ltd's Capital Reduction account shows a credit of ₹5,00,000 from reduction of share capital. The company pays ₹30,000 in cash as legal and court expenses of the reconstruction, and writes off assets of ₹4,10,000 through this account. What is the balance to be transferred to Capital Reserve?
The balance transferred to Capital Reserve is ₹60,000. The costs of reconstruction are debited to Capital Reduction account along with asset write-offs, so total debits are ₹4,40,000 against credits of ₹5,00,000. Ignoring the expenses would wrongly give ₹90,000.
- A₹60,000Correct
- B₹90,000
- C₹1,20,000
- D₹4,70,000
Explanation
Reconstruction expenses are charged to the Capital Reduction account along with the asset write-offs. Debits = ₹4,10,000 + ₹30,000 = ₹4,40,000. Balance = ₹5,00,000 - ₹4,40,000 = ₹60,000. ₹90,000 ignores the expenses; ₹1,20,000 wrongly adds them back.
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