CA Intermediate · Advanced Accounting · Internal Reconstruction
Under a reconstruction scheme, Sundaram Pharma Ltd has ₹5,00,000 of 9% debentures with ₹45,000 of interest outstanding. Debenture holders agree to accept ₹4,00,000 of new 12% debentures in full settlement of the principal and interest, plus ₹20,000 in cash. What sacrifice by the debenture holders is credited to Reconstruction (Capital Reduction) Account?
The sacrifice is ₹1,25,000. The debenture holders were owed ₹5,45,000 including interest and receive ₹4,00,000 of new debentures and ₹20,000 cash, a total of ₹4,20,000. The difference is credited to the Reconstruction Account. Ignoring the cash paid would wrongly give ₹1,45,000.
- A₹1,45,000
- B₹1,00,000
- C₹1,20,000
- D₹1,25,000Correct
Explanation
Total liability is 5,00,000 + 45,000 = ₹5,45,000. Settlement is 4,00,000 of new debentures plus 20,000 cash = ₹4,20,000. Sacrifice = 5,45,000 − 4,20,000 = ₹1,25,000. ₹1,45,000 ignores the cash paid, and ₹1,00,000 ignores the outstanding interest.
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