Following is the Balance Sheet of ABC Ltd. as at 31st March, 2023: Particulars Notes ₹ Equity and Liabilities 1 Shareholders' funds A Share capital…

CA Intermediate · Advanced Accounting · MTP · May 2024
Following is the Balance Sheet of ABC Ltd. as at 31st March, 2023: Particulars Notes ₹ Equity and Liabilities 1 Shareholders' funds A Share capital 1 26,00,000 B Reserves and Surplus 2 (4,05,000) 2 Non-current liabilities A Long-term borrowings 3 12,00,000 3 Current liabilities A Trade Payables 5,92,000 B Short term borrowings - Bank overdraft 1,50,000 Total 41,37,000 Assets 1 Non-current assets A Property, plant and equipment 4 11,50,000 B Intangible assets 5 70,000 C Non-current investment 6 68,000 2 Current assets A Inventory 14,00,000 B Trade receivables 14,39,000 C Cash and cash equivalents 10,000 Total 41,37,000 Notes to accounts ₹ 1 Share Capital Equity share capital: 2,00,000 Equity Shares of 10 each 20,00,000 6,000, 8% Preference shares of 100 each 6,00,000 26,00,000 2 Reserves and Surplus Debit balance of Profit and loss A/c (4,05,000) (4,05,000) 3 Long-term borrowings 9% debentures 12,00,000 12,00,000 4 Property, Plant and Equipment Plant and machinery 9,00,000 Furniture and fixtures 2,50,000 11,50,000 5 Intangible assets Patents and copyrights 70,000 70,000 6 Non-current investments Investments (market value of 55,000) 68,000 68,000 The following scheme of reconstruction was finalized: (i) Preference shareholders would give up 30% of their capital in exchange for allotment of 11% Debentures to them. (ii) Debenture holders having charge on plant and machinery would accept plant and machinery in full settlement of their dues. (iii) Inventory equal to 5,00,000 in book value will be taken over by trade payables in full settlement of their dues. (iv) Investment value to be reduced to market price. (v) The company would issue 11% Debentures for 3,00,000 and augment its working capital requirement after settlement of bank overdraft. Pass necessary Journal Entries in the books of the company. Prepare Capital Reduction account and Balance Sheet extract for Equity & Liabilities of the company after internal reconstruction.

Suggested Answer and Working Notes:

In the Books of ABC Ltd. Journal Entries Particulars Particulars ₹ 8% Preference share capital A/c Dr. 6,00,000 To 11% Debentures A/c 4,20,000 To Capital reduction A/c 1,80,000 [Being 30% reduction in liability of preference share capital and issue of 11% debentures] 9% Debentures A/c Dr. 12,00,000 To Plant & machinery A/c 9,00,000 To Capital reduction A/c 3,00,000 [Settlement of debenture holders by allotment of plant & machinery] Trade payables A/c Dr. 5,92,000 To Inventory A/c 5,00,000 To Capital reduction A/c 92,000 [Being settlement of creditors by giving Inventories] Bank A/c Dr. 3,00,000 To 11% Debentures A/c 3,00,000 [Being fresh issue of debentures] Bank overdraft A/c Dr. 1,50,000 To Bank A/c 1,50,000 [Being settlement of bank overdraft] Capital reduction A/c Dr. 5,72,000 To Investment A/c 13,000 To Profit and loss A/c 4,05,000 To Capital reserve A/c 1,54,000 [Being decrease in investment and profit and loss account (Dr. bal.); and balance of capital reduction account transferred to capital reserve] Capital Reduction Account Particulars ₹ ₹ To Investments A/c 13,000 By Preference share capital A/c 1,80,000 To Profit and loss A/c 4,05,000 By 9% Debenture holders A/c 3,00,000 To Capital reserve A/c 1,54,000 By Trade payables A/c 92,000 5,72,000 5,72,000 Balance Sheet Extract of ABC Ltd. (And Reduced) As at 31st March 2023 Particulars Note No ₹ I. Equity and Liabilities (1) Shareholder's Funds (a) Share Capital 1 20,00,000 (b) Reserves and Surplus 2 1,54,000 (2) Non-Current Liabilities (a) Long-term borrowings 3 7,20,000 Total 28,74,000 Notes to Accounts ₹ 1. Share Capital 2,00,000 Equity shares of 10each fully paid-up 20,00,000 2. Reserve and Surplus Capital Reserve 1,54,000 3. Long Term Borrowings 11% Debentures (₹ 4,20,000 +3,00,000) 7,20,000

Topics: Accounting for Reconstruction of Companies

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