The following scheme of reconstruction has been approved for Megha Limited on 1 st April 2025: (i) Debenture holders of 9% Debentures of 5,00,000…

CA Intermediate · Advanced Accounting · PYQS · September 2025
The following scheme of reconstruction has been approved for Megha Limited on 1 st April 2025: (i) Debenture holders of 9% Debentures of 5,00,000 accepted to receive 25% of their total in cash and take over the Plant and Machinery of 2,85,000 in full settlement of their dues. (ii) Furniture and Fixtures which stood at the books of 5,50,000 to be written down to 4,45,000. (iii) The Freehold Premises of book value of 9,25,000 showed an appreciation of 75,000. (iv) There were capital commitments amounting to 4,50,000. These contracts are to be cancelled on payment of 5% of the contract price as a penalty. (v) Write off the profit and loss account debit balance of 1,15,000 which had been accumulated over the years. (vi) In case of shortfall, the balance of the General reserve of 90,000 can be utilized to write off the losses under reconstruction scheme. You are required to pass necessary journal entries as a part of the reconstruction process as on 1 st April 2025.

Suggested Answer and Working Notes:

Journal entries in the books of Megha Ltd. ₹ i 9% Debentures A/c Dr. 5,00,000 To Bank A/c 1,25,000 To Plant & Machinery A/c 2,85,000 To Reconstruction A/c 90,000 (Being the debenture holders claim settled partly and foregone partly as per reconstruction scheme) ii Reconstruction A/c Dr. 1,05,000 To Furniture and Fixtures, A/c 1,05,000 (Writing off overvalued assets as per reconstruction Scheme) iii Freehold premises A/c Dr. 75,000 To Reconstruction A/c 75,000 (Being the increase in the value of premises credited to reconstruction account as per reconstruction scheme) iv Reconstruction A/c Dr. 22,500 To Bank A/c 22,500 (Being payment for cancellation of capital commitment.) v Reconstruction A/c Dr. 1,15,000 To Profit and loss A/c 1,15,000 (Being the loss written off as per reconstruction scheme) vi General reserve A/c Dr. 77,500 To Reconstruction A/c 77,500 (Being the balance in general reserve utilized to write off the losses as per reconstruction scheme)

Topics: Accounting for Reconstruction of Companies

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