SUCCESS COACHING CENTRE
SEC.-14, SEC.-4
9784094650, 7737296162
INTERNAL RECONSTRUCTION
Q.NO.-1) The Balance Sheet of Babru Bhan Ltd. As on 31st March 2003 is as follows.
Liabilities
Share Capital
20,000 Equity shares of Rs. 10 each
10% Preference shares of Rs. 10 each
Rs.
2,00,000
2,00,000
Assets
Goodwill
Sundry fixed Assets
Inventories
Accounts Receivables
Profit and Loss a/c
4,00,000
Note: Preference dividend is in arrear for last three years.
Rs.
20,000
1,80,000
50,000
60,000
90,000
4,00,000
It was resolved and approved that equity share of Rs. 10 be reduced to fully paid up share of Rs. 6 each and 10%
preference share be reduced to 10.5% fully paid up preference share of Rs. 7 each. Number of shares in both the cases
remains the same. It was resolved that amount so available be used to write off debit balance of P & L a/c, goodwill a/c
and fixed assets to the extent possible. Arrears of preference dividend were cancelled. You are required to give Journal
entries and the revised Balance Sheet.
Q.NO.-2) the following is the balance sheet of N.M.Ltd. as on 31st March 2003.
Liabilities
Share capital:
Authorized, issued and fully paid
up Equity Shares of Rs. 10 each
8% Preference shares of Rs. 10
each
Reserves
7% Debentures
Creditors
Rs.
1,00,000
40,000
Assets
Fixed Assets
Stock
Debtors
Cash
P & L A/c
Rs.
50,000
80,000
46,750
400
55,650
45,350
20,000
27,450
2,32,800
2,32,800
The company, after the approval of the court, puts the following scheme of reconstruction(a) Each debentures Rs. 10 of is to be exchanged for Rs. 5 of new 17% debentures, one new 12% preference share of Rs.
2.50 and one new equity share of Rs. 2.50;
(b) Each existing preference share is to be reduced to Rs. 3.75 of which Rs. 2 will be represented by new 12% preference
share and Rs. 1.75 by new equity shares.
(c) Each existing equity share is to be reduced to Rs. 2.50 and then both preference and equity shares are to be
consolidated into shares of Rs. 10.
The reduction of capital and reserve are applied for writing off losses and balance if any is used for writing
down fixed assets and stock pro-rata. You are required to give journal entries and new balance sheet.
Q. NO.-3) The summarized assets and liabilities position of Abu Hopeful Ltd. As on 1.4.2003 was as follows:
Liabilities
Rs.
Authorised Capital:
80,000 Equity Shares of Rs. 10 each
8, 00,000
2,000 9% Preference share of Rs. 100 each
2, 00,000
Issued and paid-up capital:
40,000 Equity Shares of Rs. 10 each Rs. 7.50 paid up
3, 00,000
2,000 9% preference shares of Rs. 100 each fully paid
2, 00,000
Unsecured Loans
80,000
1
AVINASH JAIN
SUCCESS COACHING CENTRE
SEC.-14, SEC.-4
9784094650, 7737296162
Trade Creditors
Bank Overdraft
48,000
16,800
6, 44,800
Assets
Goodwill
Land and Buildings
Plant and Machinery
Investments
Stock
Debtors
Cash in hand
Profit and loss account
20,000
1,60,000
1,20,000
24,000
54,000
1,18,000
6,000
1,42,800
6,44,800
Note:(a) Dividend on preference shares has not been declared for 2 years.
(b) No provision has been made for sales tax liability of Rs. 9,600.
Following Scheme of Reconstruction has been approved by the court.
(i) Uncalled capital is to be called up in full and equity shares are to be reduced to Rs. 5 per share.
(ii) Sales tax liability of Rs. 9,000 is to be paid immediately.
(iii) Land and Building are to be shown in the balance sheet at full market value of Rs. 2,20,000 and goodwill is to be
written off.
(iv) Trade creditors have consented for 25% of remission of liability on a condition that 25% of the net liability after
remission is paid forthwith and the balance is payable within one year.
(v) Investments are to be taken over by bank in full settlement of the overdraft balance.
(vi) Preference shareholders have agreed to give their right for the two years’ dividend they accepted 12 fully paid
equity shares of Rs. 5 each for each fully paid preference share.
You are required to:
(i) Pass necessary journal entries recording the above transactions; and
(ii) Draw up a fresh balance sheet after giving effect to the scheme of reconstruction.
Workings should from part of your answer.
Q.NO.-4) The position of Bhutnath Ltd. As on 31-3-2003 stood as underLiabilities
Rs.
Assets
Authorized Capital:
Goodwill
5,000 6% Pref. shares of Rs. 100 each
5,00,000
Land & Building
5,000 Equity shares of Rs. 100 each
5,00,000
Plant & machinery
10,00,000
Patents and trade mark
Subscribed capital:
Stock at cost
2,000 6% Pref. shares of Rs. 100 each
2,00,000
Sundry debtors
fully paid
Cash at bank
3,000 equity shares of Rs. 100 each fully 3,00,000
Preliminary expenses
paid
Profit & loss account
5% Debentures
1,00,000
Interest due on debentures
10,000
Sundry Creditors
1,50,000
7, 60, 000
Rs.
80, 000
75, 000
90, 000
20, 000
40, 000
39,000
6, 000
20, 000
3,90, 000
7, 60, 000
2
AVINASH JAIN
SUCCESS COACHING CENTRE
SEC.-14, SEC.-4
9784094650, 7737296162
It is believed that the worst is over and the time has arrived to effect reconstruction. A revaluation of the assets reveals
the following: Land & Building Rs. 95, 000: Plant & machinery Rs. 1, 12, 000; Patents and trademarks Rs. 5, 000; Stock Rs.
25, 000 and Debtors Rs. 32, 000.
The following scheme is framed and approved by the court:
1. The Preference Shares is be converted into 7.5% Preference shares of Rs. 30 each fully paid.
2. The equity shares be converted into shares of Rs. 5 each fully paid.
3. The sundry creditors be given the option to either accept 50% of their claims in cash in full satisfaction or to convert
their claims into equity shares 5 each.
4. The revaluation of assets be adopted. One third in value of the creditors accepted equity shares for their claims. The
rest were paid cash, which was raised by issuing 17, 000 fully paid equity shares to the existing shareholders. All shares
including preference shares were than consolidated (or sub divided) into equity shares of RS. 10 each.
5. Debenture holders forego their claim of interest due.
Assuming that all necessary actions we taken, journalise the steps and also give the Balance Sheet after the scheme is
put into effect.
Q. NO.- 5) Modern Ltd. Have been incurring losses consistently and at a general meeting of the shareholders, debenture
holders and creditors a scheme of reduction of capital was approved. The balance sheet of the company as at 31st March
2003 when the scheme was put through was as follows:
Liabilities
Rs.
Assets
Rs.
Share Capital:
10, 000 Equity Shares of Rs. 100 each
fully paid
Secured loans:
6% Debentures (Secured on all fixed
assets)
Unsecured loans:
Bank of India
Sundry Creditors:
For goods
51, 000
For interest due on
debentures
24, 000
10, 00, 000
4, 00, 000
2, 00, 000
75, 000
Fixed Assets:
Land
1, 00, 000
Plant & machinery 5, 00, 000
Goodwill
1, 00, 000
Current Assets:
Stock- in-trade
2, 25, 000
Sundry Debtors
2, 00, 000
Bank
50, 000
Loans & advances:
Bills receivables
Mis. Expenditures:
Profit & loss account
16, 75, 000
7, 00, 000
4, 75, 000
2, 00, 000
3, 00, 000
16,75, 000
The features
of the scheme of reduction in capital are:
(a) The capital of the company to be sub-dividend into 5, 000 Equity shares of Rs. 100 each and 5, 000 9% cumulative
preference Shares of Rs.100 each and issued to the present share holders.
(b) The existing shareholders to surrender their holding of preference shares issued to them under clause (a) above.
(c) The debenture holders agreed to waive their outstanding interest in full.
(d) The debenture holders agreed to surrender their holdings of debenture and to receive instead 9% cumulative
preference shares at the rate of one preference shares for each debenture held.
(e) The remaining preference shares to be issued to the unsecured loans for 50% of their dues.
(f) The balances standing to the goodwill and Profit & loss account to be written off and the balance, if any, remaining on
capital reduction to be utilized to write-off pro-rata the value of assets.
You are required to draw up the Balance sheet of the company after the scheme is given effect.
Q.NO. -6) The balance sheet of Drupad Ltd. As at 31-3-2003 was as follows:
3
AVINASH JAIN
SUCCESS COACHING CENTRE
SEC.-14, SEC.-4
9784094650, 7737296162
Rs.
Assets
Rs.
Liabilities
Share capital:
Authorized, issued and fully paid:
10, 000 6% Cumulative pref. shares of Rs.
10 each
15,000 Ordinary shares of Rs. 10 each
7% Debentures
60, 000
Interest due thereon
4, 200
Bank overdraft (secured on freehold land &
buildings, and plant)
Creditors
Freehold land & buildings
Plants
1, 00,000 Tool and dies
Investments
1,50,000 Stock
Debtors
64,200
Research & development expenditure
20, 000
Profit & loss a/c
34, 000
96, 000
27, 300
15, 000
42, 500
53, 400
18, 000
98, 000
50, 000
3, 84,200
3, 84, 200
The scheme of reorganization detailed below has been agreed by all the interested parties and approved by the court.
You are required to give (a) the journal entries recording the transaction in the books, including cash; and (b) balance
sheet of the company as at 1.4.2003 after completion of the scheme.
1. The following assets are to be revalued as shown below:
Plant Rs. 59,000; tools & dies Rs. 15,000; stock Rs. 30,000 and debtors Rs. 48,700.
2. The research & development expenditure and the debit balance of Profit & loss account are the to be written off.
3. Piece of land recorded in the books at Rs. 6,000 is valued as Rs. 14,000 and is to be taken over by the debenture
holders in part repayment of principle amount. The remaining freehold land & buildings are to be revalued at Rs.
40,000.
4. A creditor for Rs. 18,000 has agreed to accept a second mortgage debenture of 10% per annum secured on the
plant for Rs. 15, 500 in settlement of his debt. Other creditors totaling Rs. 10, 000 agreed to accept the payment of
0.85 in a rupee for immediate settlement.
5. The investment at a valuation of Rs. 22,000 is to be taken over by the bank.
6. The ascertained loss is to be met by writing down the ordinary shares to Re. 1 each and the preference share to Rs.
8.00 each. The authorized share capital is to be increased immediately to the original amount.
7. Ordinary shareholders agree to subscribe for new ordinary shares at par for every share held. This cash is all
received.
8. The cost of the scheme is Rs. 3, 500. These have been paid and are to be written off. The debenture interest has also
been paid.
Q. NO. -7 ) Gogaba Co. Ltd. is in the hands of a receiver for debenture-holders who hold a charge on all assets, except
uncalled capital. The following statement shows the position as regards creditors as on 31-3-2003.
4
AVINASH JAIN
SUCCESS COACHING CENTRE
SEC.-14, SEC.-4
9784094650, 7737296162
Rs.
Liabilities
Share capital Rs. 36, 00, 000 in shares of Rs. ----60 each, Rs. 30 paid up
Assets
Rs.
Cash at Bank to receiver
27,00,000
Property, machinery & plant, etc at cost
Rs. 39,00,000 estimated at
15,00,000
First Debentures
30,00,000
Second Debentures
60,00,000
Unsecured creditors
45,00,000
Charged under debentures
42,00,000
Uncalled capital 60,000 shares at Rs. 30 18,00,000
each
deficiency
1,35,00,000
75,00,000
1,35,00,000
‘A’ holds the first debentures for Rs. 30,00,000 and second debentures for Rs. 30,00,000. He is also an unsecured
creditor for Rs. 9,00,000. ‘B’ holds second debentures for Rs. 30, 00,000 and is also an unsecured creditor for Rs.
6,00,000
The following scheme of reconstruction is proposed:
1) ‘A’ is to cancel Rs. 21,00,000 of the total debt owing to him, to advance Rs. 3,00,000 in cash and to take first
debentures (in cancellation of those already issued to him) for Rs. 51,00,000 in satisfaction of all his claims.
2) ‘B’ is to accept Rs. 9,00,000 in cash in satisfaction of all claims by him.
3) Unsecured creditors (other than A &B) are to accept four shares of Rs. 7.50 each fully paid in satisfaction of 0.75
paise in the rupee of every Rs. 60 f their claims. The balance of 25 paise in the rupee is to be postponed, and to
be payable at the end of three years from the date of court’s approval of the scheme. The nominal share capital
is to be increased accordingly.
4) Uncalled capital is to be called up in full and Rs. 52.50 per share cancelled, thus making the share of Rs. 7.50
each.
Assuming that the scheme is duly approved by all parties interested and by the court, adjust the statement
accordingly and show the company’s balance sheet and give the necessary journal entries.
Q.NO.-8) The Balance sheet of Apex Ltd. as on 31st March 2003 was as follows:
Rs.
Assets
Liabilities
Authorized and issued share capital:
Fixes Assets
8,000 Equity shares of Rs. 100 each
8, 00,000 Investments
6% Debentures
14,00,000 Debtors
Accrued Interest on Debentures
70,000
Stock in trade
Trade Creditors
4,50, 000 Bank
Income tax due
80, 000
Profit & loss a/c
(Dr Balance)
28,00,000
Rs.
14,30, 000
17, 000
30, 300
80, 000
1,73,000
10,70,000
28,00,000
The following scheme of reorganization was approved by the court:
(i) Each equity share shall be sub-divided into twenty fully paid equity shares of Rs. 5 each.
5
AVINASH JAIN
SUCCESS COACHING CENTRE
SEC.-14, SEC.-4
9784094650, 7737296162
(ii) After sub-division, each shareholder shall surrender 95% of their holidays to the company for the purpose of re-issue
to Debenture holders and creditors so for as required and otherwise for cancellation.
(iii) Of those surrendered 46,000 shares of Rs. 5 each shall be converted into 8% participating preference shares of Rs. 5
each fully paid.
(Iv) Debenture holder’s total claim to be reduced to Rs. 2, 30,000. This will be satisfied by the issue of 46,000
participating preference shares of Rs. 5 each fully paid to them.
(v) The liability for income tax was paid off in full.
(vi) The claims for unsecured creditors shall be reduced by 80% and the balance shall be satisfied by allotting them
equity shares of Rs. 5 each fully paid from the shares surrended.
(vii) Shares surrendered and not issued shall be cancelled.
(viii) The value of fixed assets is to be reduced to Rs. 2, 30,000.
You are required to give necessary journal entries and also prepare Balance sheet after reorganization.
6
AVINASH JAIN