CA Intermediate · Advanced Accounting · Internal Reconstruction
Under a reconstruction scheme of Gange Ltd, holders of ₹6,00,000 10% debentures, on which one year's interest of ₹60,000 is outstanding, agree to accept 5,00,000 worth of fully paid equity shares issued at par plus ₹40,000 in cash in full settlement of principal and interest. What is the amount of sacrifice credited to Capital Reduction Account on this settlement?
The sacrifice is ₹1,20,000. Debenture holders were owed ₹6,60,000 including interest but receive only ₹5,40,000 in shares and cash, so the difference of ₹1,20,000 is credited to Capital Reduction Account.
- A₹1,60,000
- B₹1,00,000
- C₹60,000
- D₹1,20,000Correct
Explanation
Total due = ₹6,00,000 + ₹60,000 = ₹6,60,000. Settlement = ₹5,00,000 shares + ₹40,000 cash = ₹5,40,000. Sacrifice = ₹6,60,000 − ₹5,40,000 = ₹1,20,000. ₹1,60,000 ignores the cash paid; ₹1,00,000 ignores both interest and cash.
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