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CA Intermediate · Advanced Accounting · Internal Reconstruction

Yamuna Ltd has 20,000 11% preference shares of Rs 100 each and 40,000 equity shares of Rs 10 each, all fully paid. Under an internal reconstruction, preference shares are reduced to Rs 70 each and equity shares to Rs 2.50 each. Goodwill of Rs 3,00,000 and a debit Profit and Loss balance of Rs 4,00,000 are to be written off, and plant is written down by Rs 1,25,000. What balance will remain in (or be transferred to Capital Reserve from) the Capital Reduction Account after all adjustments?

The balance is a credit of Rs 75,000, which does not appear among the options, so this question is flawed.

  1. ACredit balance of Rs 2,75,000 transferred to Capital ReserveCorrect
  2. BCredit balance of Rs 4,00,000 transferred to Capital Reserve
  3. CDebit balance of Rs 2,75,000
  4. DNil balance

Explanation

Preference reduction = 20,000 x 30 = Rs 6,00,000. Equity reduction = 40,000 x 7.50 = Rs 3,00,000. Total credit = Rs 9,00,000. Write-offs = 3,00,000 + 4,00,000 + 1,25,000 = Rs 8,25,000. Balance = Rs 75,000 credit. Recomputing: 9,00,000 - 8,25,000 = 75,000, so the key must be Rs 75,000, not any listed figure. Corrected approach: none of the listed values matches, so this item is invalid.

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