The following information of Rocky Ltd. as at March 31, 2024: ₹ in lacs Fully paid equity shares of 10 each 500 Capital Reserve 6 12% Debentures 400…

CA Intermediate · Advanced Accounting · MTP · January 2025
The following information of Rocky Ltd. as at March 31, 2024: ₹ in lacs Fully paid equity shares of 10 each 500 Capital Reserve 6 12% Debentures 400 Debenture Interest Outstanding 48 Trade payables 165 Directors' Remuneration Outstanding 10 Other Outstanding Expenses 11 Provisions 33 Assets Goodwill 15 Land and Building 184 Plant and Machinery 286 Furniture and Fixtures 41 Inventory 142 Trade receivables 80 Cash at Bank 27 Discount on Issue of Debentures 8 Profits and Loss Account 390 The following scheme of internal reconstruction was framed, approved by the Tribunal all the concerned parties and implemented: All the equity shares be converted into the same number of fully-paid equity shares of 2.50 each.Directors agree to forego their outstanding remuneration.The debentureholders also agree to forego outstanding interest in return of their 12% debentures being converted into 13% debentures.The existing shareholders agree to subscribe for cash, fully paid equity shares of 2.50 each for 125lacs.Trade payables are given the option of either to accept fully-paid equity shares of 2.50 each for the amount due to them or to accept 80% of the amount due in cash. Trade payables for 65lacs accept equity shares whereas those for 100lacs accept 80lacs in cash in full settlement.The Assets are revalued as under: ₹ in lacs Land and building 230 Plant and Machinery 220 Inventory 120 Trade receivables 76 Pass Journal Entries for all the above mentioned transactions immediately after the reconstruction.

Suggested Answer and Working Notes:

Journal Entries Particulars Dr. Cr. ₹ in lacs Equity Share Capital (10 each) A/c 500 To Equity Share Capital (2.50 each) A/c 125 To Reconstruction A/c 375 (Conversion of all the equity shares into the same number of fully paid equity shares of 2.50 each as per scheme of reconstruction) Director's Remuneration Outstanding A/c 10 To Reconstruction A/c 10 (Outstanding remuneration foregone by the directors as per scheme of reconstruction) 12% Debentures A/c 400 Debenture Interest Outstanding A/c 48 To 13% Debentures A/c 400 To Reconstruction A/c 48 (Conversion of 12% debentures into 13% debentures, Debenture holders forgoing outstanding debenture interest) Bank A/c 125 To Equity Share Application A/c 125 (Application money received for fully paid equity shares of 2.5 each from existing shareholders) Equity Share Application A/c 125 To Equity Share Capital (₹ 2.50 each) A/c 125 (Application money transferred to share capital) Trade payables A/c 165 To Equity Share Capital (₹ 2.50 each) A/c 65 To Bank A/c 80 To Reconstruction A/c 20 (Trade payables for 65lakhs accepting shares for full amount and those for 100lakhs accepting cash equal to 80% of claim in full settlement) Capital Reserve A/c 6 To Reconstruction A/c 6 (Being the loss on reconstruction (balance in the Reconstruction A/c) transferred to Capital Reserve) Land and Building A/c 46 To Reconstruction A/c 46 (Appreciation made in the value of land and building as per scheme of reconstruction) Reconstruction A/c 505 To Goodwill A/c 15 To Plant and Machinery A/c 66 To Inventory A/c 22 To Trade receivables A/c 4 To Discount on Issue of Debentures A/c 8 To Profit and Loss A/c 390 (Writing off losses and reduction in the values of assets as per scheme of reconstruction—W.N. 1) Note: In a scheme of Reconstruction, Goodwill, Losses etc should be written off against the Reconstruction Account whether or not it is mentioned in the question.

Topics: Accounting for Reconstruction of Companies

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