CA Intermediate · Advanced Accounting · Internal Reconstruction
Tarini Textiles Ltd. has 10,000 equity shares of ₹100 each, fully paid. Under a scheme of internal reconstruction duly approved, each share is reduced to a fully paid share of ₹40. The reduction is carried out for the purpose of writing off accumulated losses. What amount will be credited to the Capital Reduction Account on this reduction?
₹6,00,000 is credited to Capital Reduction Account. Each share is reduced from ₹100 to ₹40, so the sacrifice is ₹60 per share. Multiplied by 10,000 shares, the capital extinguished is ₹6,00,000, while the remaining ₹4,00,000 stays as paid-up capital.
- A₹4,00,000
- B₹6,00,000Correct
- C₹10,00,000
- D₹60,000
Explanation
Each share is reduced by ₹100 - ₹40 = ₹60. For 10,000 shares the reduction is 10,000 × ₹60 = ₹6,00,000, which is credited to Capital Reduction Account. ₹4,00,000 is wrong because it is the new paid-up capital, not the amount given up.
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