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CA Intermediate · Advanced Accounting · Internal Reconstruction

Vardhan Foods Ltd has 20,000 equity shares of ₹100 each, fully paid. Under an approved reconstruction scheme, each share is reduced by ₹60. The directors also waive their loan of ₹1,00,000, which is credited to Capital Reduction account. Goodwill ₹1,50,000, debit balance of Profit and Loss ₹4,00,000, plant ₹2,00,000 and inventory ₹1,00,000 are written off or down. In addition, a claim of ₹1,20,000 previously shown as a contingent liability is now to be recognised as a liability and charged through Capital Reduction account. After all adjustments, what balance is transferred to Capital Reserve?

₹3,30,000 is transferred to Capital Reserve. Credits to Capital Reduction account are ₹12,00,000 plus ₹1,00,000 director's waiver, total ₹13,00,000. Debits are ₹8,50,000 of write-offs plus the ₹1,20,000 claim now recognised, total ₹9,70,000. The surplus is ₹3,30,000.

  1. A₹3,30,000Correct
  2. B₹4,50,000
  3. C₹2,30,000
  4. D₹5,70,000

Explanation

Credits: 20,000 × ₹60 = ₹12,00,000 plus director's waiver ₹1,00,000 = ₹13,00,000. Debits: 1,50,000 + 4,00,000 + 2,00,000 + 1,00,000 + 1,20,000 (claim) = ₹9,70,000. Balance = ₹3,30,000. Omitting the claim gives ₹4,50,000; omitting the director's waiver gives ₹2,30,000; adding the claim as a credit gives ₹5,70,000.

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