CA Intermediate · Advanced Accounting · Internal Reconstruction
Sagar Pharma Ltd has 1,00,000 equity shares of ₹10 each, ₹8 per share called and paid up (₹2 uncalled). Under a reconstruction scheme, the shares are converted into ₹5 shares, fully paid up. What amount is credited to the Capital Reduction Account on the reduction of paid-up equity capital?
₹3,00,000 is credited. Only the paid-up amount is in the books: ₹8 per share before and ₹5 per share after. The reduction of ₹3 on 1,00,000 shares is credited to the Capital Reduction Account. The uncalled ₹2 is not recorded.
- A₹3,00,000Correct
- B₹5,00,000
- C₹2,00,000
- D₹8,00,000
Explanation
Paid-up capital before = 1,00,000 × 8 = ₹8,00,000. Paid-up capital after = 1,00,000 × 5 = ₹5,00,000. Reduction credited = ₹3,00,000. Using the face value difference (10 − 5) gives ₹5,00,000, which is wrong because ₹2 per share was never called and so never recorded in the books.
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