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CA Intermediate · Advanced Accounting · Internal Reconstruction

Veda Textiles Ltd has 1,00,000 equity shares of ₹10 each, fully paid. Under a court-approved internal reconstruction, each share is reduced to ₹4 fully paid. The Capital Reduction Account is used to write off: Profit and Loss Account debit balance ₹2,50,000, preliminary expenses ₹50,000, goodwill ₹1,00,000, and to reduce plant by ₹1,20,000. After all adjustments, what balance remains in the Capital Reduction Account to be transferred to Capital Reserve?

The remaining balance is ₹80,000. Capital reduction credits ₹6,00,000 (1,00,000 shares × ₹6), while losses and asset write-downs total ₹5,20,000. The surplus ₹80,000 is a capital profit and is transferred to Capital Reserve.

  1. A₹80,000Correct
  2. B₹2,00,000
  3. C₹5,20,000
  4. D₹6,00,000

Explanation

Reduction in equity capital = 1,00,000 × (10 − 4) = ₹6,00,000 credited. Debits = 2,50,000 + 50,000 + 1,00,000 + 1,20,000 = ₹5,20,000. Balance = 6,00,000 − 5,20,000 = ₹80,000, transferred to Capital Reserve. ₹2,00,000 results from forgetting the plant write-down.

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