PRACTICE SET – QUASI-REORGANIZATION
I.
ABC Company had sustained heavy losses over a period of time and conditions warrant
that the entity should undergo a quasi-reorganization at year-end.
▪
Inventory is currently recorded at cost of P6,500,000. The market value is P6,000,000.
▪ Property, plant and equipment were recorded at P12,000,000, net of accumulated
depreciation. The fair value was P8,000,000.
▪ The par value of the share is to be reduced from P10 to P5.
▪ Before the quasi-reorganization, the share capital is P7,000,000 consisting of 700,000
shares, the share premium is P2,300,000 and the deficit in retained earnings is
P900,000.
1. Immediately after quasi-reorganization, how much is the increase (decrease) in the
inventories of the company?
2. Immediately after the quasi-reorganization, how much is the increase (decrease) in
the property, plant and equipment of the company?
3. Immediately after the quasi-reorganization, how much is the increase (decrease) in
the share capital account of the company?
4. Immediately after the quasi-reorganization, how much is the increase (decrease) in
the share premium account of the company?
5. Immediately after quasi-reorganization, how much is the balance of the retained
earnings of the company?
6. Immediately after the quasi-reorganization, what amount should be reported as total
shareholder’s equity?
II.
Prior to quasi-reorganization, ABC Company has the following information in its statement
of financial position for the calendar year ended December 31, 2022: Current assets –
P1,000,000; Property, plant and equipment – P7,500,000; Accumulated Depreciation –
P1,000,000; Liabilities – P4,500,000; Share capital with P100 par value – P5,000,000;
Retained earnings (deficit) – P2,000,000. Total issued and outstanding shares for the year
is 50,000 shares.
The shareholders and creditors agreed to the following adjustments to have a successful
quasi-reorganization.
▪
▪
▪
▪
The property, plant and equipment shall be recorded at the fair value of P6,000,000.
The inventories are overvalued by 250,000.
The share capital is reduced to P2,000,000, 20,000 shares, P100 par value.
The deficit, if any, will be charged against the share premium arising from
recapitalization.
7. Immediately after quasi-reorganization, how much is the increase (decrease) in the
inventories of the company?
8. Immediately after quasi-reorganization, what is the effect in the deficit in
considering the change in the fair value of the property, plant and equipment?
9. Immediately after quasi-reorganization, what is the effect in the deficit due to the
reduction of share capital?
10. Immediately after quasi-reorganization, what is the effect of the reduction of share
capital to the share premium account of the company?
11. Immediately after quasi-reorganization, how much is the total assets of the
company?
12. Immediately after quasi-reorganization, how much is the share capital of the
company?
13. Immediately after quasi-reorganization, how much is the share premium of the
company?
14. Immediately after quasi-reorganization, how much is the retained earnings (deficit)
of the company?
15. Immediately after quasi-reorganization, how much is the total shareholders’ equity
of the company?
III.
Same scenario in Item II, however, the deficit, if any, will be charged against the
revaluation surplus.
16. Immediately after quasi-reorganization, how much is the increase (decrease) in the
inventories of the company?
17. Immediately after quasi-reorganization, what is the effect in the deficit in
considering the change in the fair value of the property, plant and equipment?
18. Immediately after quasi-reorganization, what is the effect in the deficit due to the
reduction of share capital?
19. Immediately after quasi-reorganization, what is the effect of the reduction of share
capital to the share premium account of the company?
20. Immediately after quasi-reorganization, how much is the total assets of the
company?
21. Immediately after quasi-reorganization, how much is the share capital of the
company?
22. Immediately after quasi-reorganization, how much is the share premium of the
company?
23. Immediately after quasi-reorganization, how much is the retained earnings (deficit)
of the company?
24. Immediately after quasi-reorganization, how much is the total shareholders’ equity
of the company?