Skip to content

CMA Final · Corporate Financial Reporting · Internal Reconstruction (Capital Reduction)

Sharma Textiles Ltd has 50,000 equity shares of Rs 100 each fully paid, a debit balance in Profit and Loss Account of Rs 12,00,000 and a Preliminary Expenses balance of Rs 1,00,000. Under a scheme of capital reduction approved by the Tribunal, the shares are reduced to Rs 70 each (fully paid) to write off these losses, and any balance of the reduction is used to write down plant. What amount is credited to Plant (written down) from the Capital Reduction Account?

The reduction is 50,000 shares times Rs 30, which is Rs 15,00,000. Profit and loss debit of Rs 12,00,000 and preliminary expenses of Rs 1,00,000 absorb Rs 13,00,000, leaving Rs 2,00,000 available to write down plant.

  1. ARs 2,00,000Correct
  2. BRs 3,00,000
  3. CRs 1,00,000
  4. DRs 15,00,000

Explanation

Reduction = 50,000 x Rs 30 = Rs 15,00,000 credited to Capital Reduction Account. Losses written off: Rs 12,00,000 + Rs 1,00,000 = Rs 13,00,000. Balance = Rs 2,00,000 is used to write down plant. Rs 15,00,000 ignores the losses already absorbed.

Did you get it right without looking?

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

Practise Internal Reconstruction (Capital Reduction)Free diagnostic mock

More Internal Reconstruction (Capital Reduction) questions