CA Intermediate · Advanced Accounting · Internal Reconstruction
Which of the following is correctly treated in the books of a company on internal reconstruction when the final credit balance remains in Capital Reduction Account after all write-offs?
A residual credit balance in Capital Reduction Account is a capital profit, so it is transferred to Capital Reserve. It is not distributable as dividend and is not shown as a liability.
- AIt is transferred to Capital ReserveCorrect
- BIt is distributed as dividend to equity shareholders
- CIt is credited to Securities Premium
- DIt is carried forward as a deferred liability
Explanation
A surplus in Capital Reduction Account is a capital profit and is transferred to Capital Reserve. It cannot be distributed as dividend as it is not a realised revenue profit.
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