Skip to content

CA Intermediate · Advanced Accounting · Internal Reconstruction

Shalini Textiles Ltd has 50,000 equity shares of ₹10 each, fully paid. Under a court-approved scheme of internal reconstruction, each share is reduced to ₹3 fully paid. The amount available is used to write off goodwill of ₹80,000, a debit balance in the Profit and Loss Account of ₹2,00,000 and preliminary expenses of ₹20,000. Plant is also written down by ₹30,000. What balance remains to be transferred to Capital Reserve?

₹20,000 goes to Capital Reserve. The share reduction creates ₹3,50,000 (50,000 shares × ₹7). Write-offs of goodwill, losses, preliminary expenses and plant total ₹3,30,000. The remaining credit in the Capital Reduction Account of ₹20,000 is transferred to Capital Reserve.

  1. A₹20,000Correct
  2. B₹50,000
  3. C₹40,000
  4. DNil

Explanation

Reduction of capital = 50,000 × (₹10 − ₹3) = ₹3,50,000. Losses and write-downs = 80,000 + 2,00,000 + 20,000 + 30,000 = ₹3,30,000. Balance = ₹20,000, which is credited to Capital Reserve. The ₹50,000 option wrongly leaves out the plant write-down of ₹30,000.

Did you get it right without looking?

One question tells you little. A timed set on Internal Reconstruction shows your real accuracy, how long you take and where you lose marks.

Practise Internal ReconstructionFree diagnostic mock

More Internal Reconstruction questions