The Balance Sheet of Chanda Ltd. as on 31st March, 2019 was as follows: PARTICULARS (₹ in Lakh) I. EQUITY AND LIABILITIES (1) Shareholders' Funds (a) Share Capital • 40,00,000 Equity Shares of ₹10 each fully paid 400 • 2

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2019
The Balance Sheet of Chanda Ltd. as on 31st March, 2019 was as follows: PARTICULARS (₹ in Lakh) I. EQUITY AND LIABILITIES (1) Shareholders' Funds (a) Share Capital • 40,00,000 Equity Shares of ₹10 each fully paid 400 • 2,00,000, 7% Cumulative Preference Shares of ₹100 each 200 (b) Reserves and Surplus • Securities Premium 35 • Surplus (Dr.) (85) (2) Current Liabilities: Trade Payables 154 Total 704 II. ASSETS (1) Non-Current Assets — Fixed Assets (a) Tangible Assets: • Land and Building 360 • Plant and Machinery 196 (b) Intangible Fixed Assets: Goodwill at cost 50 (c) Other Non-current Assets: Preliminary Expenses 8 (2) Current Assets • Inventories 62 • Trade Receivables 28 Total 704 ** Dividend on preference shares is in arrear from 1st April, 2016. The following terms of Capital Reduction Scheme were settled and duly approved on 31st March, 2019: (1) Preference Shares to be reduced to ₹80 each fully paid and Equity Shares to ₹4 each fully paid. (2) One fully paid-up ₹4 equity share to be issued for every ₹10 of preference share dividend arrears. (3) Goodwill, Preliminary expenses and debit balance of Surplus Account to be written off. Securities Premium Account may be utilised to the extend required for this purpose. (4) Land & Building and Plant & Machinery were revalued at ₹265 Lakh and ₹151 Lakh respectively. Show journal entries reflecting the effect of the above transactions and draw the Balance Sheet after affecting the scheme. Ignore dividend distribution tax.

Answer & Explanation:

Journal Entries in the Books of Chanda Limited Date Particulars L.F. Debit (₹) Credit (₹) 31.3.19 7% Preference Share Capital A/c (₹100) Dr. 200 To 7% Preference Share Capital A/c (₹80) 160 To Capital Reduction A/c 40 (Being Nominal value of Preference Shares reduced from ₹100 to ₹80 per share and the resultant sacrifice credited to Capital Reduction A/c) 31.3.19 Equity Share Capital A/c (₹10) Dr. 400 To Equity Share Capital A/c (₹4) 160 To Capital Reduction A/c 240 (Being Nominal value of Equity Shares reduced from ₹10 to ₹4 per share) 31.3.19 Capital Reduction A/c Dr. 16.80 To Preference Share Dividend A/c 16.80 (Being 40% arrears for 3 years P. S. Dividend to be paid to was made out of Capital Reduction A/c) 31.3.19 Preference Share Dividend A/c Dr. 16.80 To Equity Share Capital A/c 16.80 (Being P.S. Dividend paid by issuing ₹4 equity shares) 31.3.19 Securities Premium A/c Dr. 19.80 To Capital Reduction A/c 19.80 (Being ₹19.80 Lakh of Securities Premium Account transferred to Capital Reduction A/c) 31.3.19 Capital Reduction A/c Dr. 283 To Goodwill A/c 50 To Preliminary Expenses A/c 8 To Surplus A/c 85 To Land and Building A/c 95 To Plant and Machinery A/c 45 (Being Losses written off out of Capital Reduction A/c) Securities Premium utilized = ₹19.80 Lakhs (i.e. 283 + 16.80 - 40 - 240) The Balance Sheet of Chanda Ltd. as on 31st March, 2019 Particulars (₹ in Lakhs) I EQUITY AND LIABILITIES 1. Shareholders' Funds (a) Share Capital 40,00,000 Equity Shares of ₹4 each fully paid 160 4,20,000 Equity Shares of ₹4 each fully paid issued for consideration other than cash 16.80 2,00,000, 7% Cumulative Preference Shares of ₹80 each 160 (b) Reserves and Surplus Securities Premium 15.20 2. Current Liabilities Trade Payables 154 Total 506 II ASSETS 1. Non-Current Assets- Fixed Assets (a) Tangible Assets Land and Building 265 Plant and Machinery 151 2. Current Assets Inventories 62 Trade Receivables 28 Total 506

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