Question 2 Following is the summarized Balance Sheets of Z Limited as on 31st March, 2024: Particulars (₹) EQUITY AND LIABILITIES: Share Capital…

CA Intermediate · Advanced Accounting · PYQS · May 2024
Question 2 Following is the summarized Balance Sheets of Z Limited as on 31st March, 2024: Particulars (₹) EQUITY AND LIABILITIES: Share Capital Equity shares of 100 each 60,00,000 8% Preference shares of 100 each 21,00,000 10% Debentures of 100 each 18,00,000 Trade Payables 16,80,000 Total 1,15,80,000 ASSETS: Goodwill 81,000 Property, Plant and Equipment 72,00,000 Trade Receivables 13,75,000 Inventories 9,80,000 Cash at Bank 1,33,000 Own Debentures (Nominal value of 6 lakhs) 5,76,000 Profit and Loss A/c 12,35,000 Total 1,15,80,000 On 1st April, 2024, court approved the following reconstruction scheme for Z Limited: (i) Each equity share shall be sub-divided into 10 equity shares of 10 each fully paid up. After sub-division, equity share capital will be reduced by 40%. (ii) Preference share dividends are in arrear for last 4 years. Preference shareholders agreed to waive 75% of their dividend claim and accept payment for the balance. (iii) Own debentures of 2,40,000 (nominal value) were sold at 98 cum interest and remaining own debentures were cancelled. (iv) Debenture holders of 6,00,000 agreed to accept one machinery of book value of 9,00,000 in full settlement. (v) Remaining Property, Plant and Equipment were valued at 60,00,000. (vi) Trade Payables, Trade Receivables and Inventories were valued at 15,00,000,13,00,000 and - 9,44,000 respectively. Goodwill and Profit and Loss Account (Debit balance) are to be written off. (vii) Company paid - 60,000 as penalty to avoid capital commitments of 12 lakhs. (viii) Interest on 10% Debentures is paid every year on 31st March. You are required to: (1) Pass necessary journal entries in the books of Z Limited to implement the above schemes. (2) Prepare Capital Reduction Account. (3) Prepare Bank Account (14 Marks)

Suggested Answer and Working Notes:

1. Journal entries In the Books of Z Ltd. as on 1st April 2024 Particulars Dr. Amount (₹) Cr. Amount (₹) 01.04.2024 1. Equity share capital A/c (100) Dr. 60,00,000 To Equity share capital A/c (10) 60,00,000 (Being sub-division of one share of 100each into 10 shares of 10each) 2. Equity share capital A/c (10) Dr. 24,00,000 To Capital reduction A/c 24,00,000 (Being reduction of Equity capital by 40%) 3. Capital reduction A/c Dr. 1,68,000 To Bank A/c 1,68,000 (Being payment in cash of 25% of arrear of preference dividend) [21,00,000x8%] x 4 years 4. Bank A/c Dr. 2,35,200 To Own debentures A/c 2,30,400 (5,76,000/6,00,000) x 2,40,000 To Capital reduction A/c 4,800 (Being profit on sale of own debentures of 2,40,000 transferred to capital reduction A/c) 5. 10% Debentures A/c Dr. 3,60,000 (6,00,000 -2,40,000) To Own debentures A/c 3,45,600 To Capital reduction A/c 14,400 (Being profit on cancellation of own debentures transferred to capital reduction A/c) 6. 10% Debentures A/c Dr. 6,00,000 Capital reduction A/c Dr. 3,00,000 To Machinery or PPE A/c 9,00,000 (Being machinery taken up by debenture holders for 6,00,000) 7. Capital reduction A/c (balancing figure) Dr. 3,00,000 To PPE A/c 3,00,000 (72,00,000 - 9,00,000 - 60,00,000) (Being PPE revalued) 8. Trade payables A/c Dr. 1,80,000 (16,80,000-15,00,000) To Trade receivables A/c 75,000 (13,75,000-13,00,000) To Inventory A/c 36,000 (9,80,000-9,44,000) To Capital Reduction A/c 69,000 (Being assets and liabilities revalued) 9. Capital reduction A/c Dr. 13,16,000 To Goodwill A/c 81,000 To Profit and Loss A/c 12,35,000 (Being the above assets written off) 10. Capital reduction A/c Dr. 60,000 To Bank A/c 60,000 (Being penalty paid for avoidance of capital commitments) 11. Capital reduction A/c Dr. 3,44,200 To Capital reserve A/c 3,44,200 (Being the credit balance in Capital Reduction A/c transferred to Capital Reserve) 2. Capital Reduction Account (₹) (₹) To Bank 1,68,000 By Equity Share Capital 24,00,000 To Property, Plant & Equipment 3,00,000 By Trade Payable 1,80,000 To Property, Plant & Equipment 3,00,000 By Bank A/c (Profit on Sale) 4,800 To Trade Receivables 75,000 By 10% debentures A/c (Profit on cancellation) 14,400 To Inventory 36,000 To Goodwill 81,000 To Profit and Loss A/c 12,35,000 To Cash/Bank A/c 60,000 To Capital Reserve 3,44,200 25,99,200 25,99,200 3. Bank Account ₹ ₹ To To balance b/d 1,33,000 By Capital Reduction 1,68,000 To Own Debenture (2,30,400 +4,800) 2,35,200 By Capital Reduction A/c 60,000 By balance c/d 1,40,200 3,68,200 3,68,200

Topics: Accounting for Reconstruction of Companies

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