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CA Intermediate · Advanced Accounting · Internal Reconstruction

Under a scheme of internal reconstruction, trade creditors of Anand Foods Ltd. amounting to ₹6,00,000 agree to the following: they will receive 15,000 new equity shares of ₹10 each, issued at par and fully paid; they will receive ₹2,50,000 in cash; and the balance of their claim is waived. What amount of creditors' claim is waived and credited to Capital Reduction Account?

The waived amount is ₹2,00,000. Creditors of ₹6,00,000 receive shares worth ₹1,50,000 and cash of ₹2,50,000, so ₹4,00,000 is settled. The remaining ₹2,00,000 is their sacrifice and is credited to Capital Reduction Account. Ignoring the shares issued would wrongly give ₹3,50,000.

  1. A₹2,00,000Correct
  2. B₹4,00,000
  3. C₹3,50,000
  4. D₹4,50,000

Explanation

Settlement = shares 15,000 × ₹10 = ₹1,50,000 plus cash ₹2,50,000 = ₹4,00,000. Amount waived = ₹6,00,000 − ₹4,00,000 = ₹2,00,000. ₹3,50,000 arises by deducting only the cash and forgetting the shares issued.

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