CA Intermediate · Advanced Accounting · Internal Reconstruction
Vasudha Textiles Ltd has 5,00,000 equity shares of Rs 10 each, fully paid. Under a court-approved scheme of internal reconstruction, each share is reduced to a fully paid share of Rs 4. What amount will be credited to the Capital Reduction Account on account of equity shares?
Rs 30,00,000 is credited to the Capital Reduction Account. Each share's value falls from Rs 10 to Rs 4, a reduction of Rs 6, and this applies to 5,00,000 shares. The amount given up by shareholders is the reduction, not the new value of the shares.
- ARs 20,00,000
- BRs 30,00,000Correct
- CRs 50,00,000
- DRs 12,00,000
Explanation
Reduction per share = Rs 10 - Rs 4 = Rs 6. Total reduction = 5,00,000 x Rs 6 = Rs 30,00,000, credited to Capital Reduction Account. Rs 20,00,000 wrongly uses the new paid-up value (Rs 4) as the reduction.
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