The summarized Balance Sheet of Vijay Ltd. as on 31st March, 2025 is given below Liabilities Amount Equity Shares of 10 each 3,50,000 8%, Cumulative…

CA Intermediate · Advanced Accounting · MTP · January 2026
The summarized Balance Sheet of Vijay Ltd. as on 31st March, 2025 is given below Liabilities Amount Equity Shares of 10 each 3,50,000 8%, Cumulative Preference Shares of 100 each 1,75,000 6% Debentures of 100 each 1,40,000 Sundry Creditors 1,75,000 Provision for taxation 3,500 Total 8,43,500 Assets Property Plant and Equipment 4,37,500 Investments (Market value - 33,250) 35,000 Current Assets (Including Bank Balance) 3,50,000 Profit and Loss Account 21,000 Total 8,43,500 The following Scheme of Internal Reconstruction is approved and put in effect on 31st March, 2025. 1. Investments are to be brought to their market value. 2. The Taxation Liability is settled at 5,250 out of Current Assets 3. The balance of Profit and Loss Account to be written off. 4. All the existing equity shares are reduced to 4 each. 5. All preference shares are reduced to 60 each. 6. The rate of interest on debentures is increased to 9%. The Debenture holders surrender their existing debentures of 100 each and exchange them for fresh debentures of 80 each. Each old debenture is exchanged for one new debenture. 7. Balance of Current Assets left after settlement of taxation liability are revalued at 1,57,500. 8. Property Plant and Equipment are written down to 80%. 9. One of the creditors of the Company for 70,000 gives up 50% of his claim. He is allotted 8,750 equity shares of 4 each in full and final settlement of his claim. Pass Journal entries for the above transactions.

Suggested Answer and Working Notes:

Journal Entries in the books of Vijay Ltd. Particulars Particulars ₹ (1) Capital Reduction A/c Dr. 1,750 To Investments A/c 1,750 (Being investments revalued to Market Value) (2) (a) Provision for taxation A/c Dr. 3,500 Capital Reduction A/c Dr. 1,750 To Liability for taxation 5,250 (Being tax liability ascertained) (b) Liability for Taxation Dr. 5,250 To Current Assets (Bank A/c) 5,250 (Being the payment of tax liability). (3) Capital Reduction A/c Dr. 21,000 To Profit & Loss A/c 21,000 (Being debit balance of P&L written off) (4) Equity Share Capital (10) Dr. 3,50,000 To Equity Share Capital (4) 1,40,000 To Capital Reduction A/c 2,10,000 (Being conversion of equity share capital of 10each into 4each). (5) 8% Cumulative Preference Share Cap A/c Dr. 1,75,000 To 8% Cumulative Preference Share Capital A/c 1,05,000 To Capital Reduction 70,000 (Being conversion of 8% cumulative preference shares capital of 100each into 60each) (6) 6% Debentures A/c Dr. 1,40,000 To 9% Debentures 1,12,000 To Capital Reduction 28,000 (Being 9% debentures of 80each issued to existing to 6% debenture holders) (7) Capital Reduction A/c Dr. 1,87,250 To Current Assets A/c 1,87,250 (Being current assets revalued) (8) Capital Reduction A/c Dr. 87,500 To Property, Plant & Equipment A/c 87,500 (Being PPE revalued) (9) Sundry Creditors A/c Dr. 70,000 To Equity Share Capital (4) 35,000 To Capital Reduction A/c 35,000 (Being claims of a creditor satisfied) (10) Capital Reduction A/c Dr. 43,750 To Capital Reserve (Bal. Fig.) 43,750 (Being balance of Capital Reduction transferred to Capital Reserve)

Topics: Accounting for Reconstruction of Companies

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