The balance sheet of Magna Ltd. as on 31st March, 2015 is given below: I. EQUITY AND LIABILITIES (1) Shareholders' funds (a) Share capital Equity shares of ₹100 each: ₹50,00,000 12% cumulative preference shares of ₹100 e

CS Executive · Company Accounts & Auditing Practices · PYQS · December 2015
The balance sheet of Magna Ltd. as on 31st March, 2015 is given below: I. EQUITY AND LIABILITIES (1) Shareholders' funds (a) Share capital Equity shares of ₹100 each: ₹50,00,000 12% cumulative preference shares of ₹100 each: ₹25,00,000 (b) Reserves and surplus Surplus: (₹2,00,000) Preliminary expenses: (₹1,00,000) (2) Non-current liabilities 10% debentures of ₹100 each: ₹20,00,000 (3) Current liabilities (a) Trade payables: ₹25,00,000 (b) Tax provision: ₹50,000 TOTAL: ₹1,17,50,000 II. ASSETS (1) Non-current assets (a) Fixed assets: ₹62,50,000 (b) Investments (market value ₹4,75,000): ₹5,00,000 (2) Current assets : ₹50,00,000 TOTAL: ₹1,17,50,000 It was decided to reconstruct with the following scheme: (i) All the existing equity shares are reduced to ₹40 each and preference shares to ₹60 each. (ii) The debentureholders surrender their existing debentures and exchange the same with fresh 12% debentures of ₹70 each. (iii) Creditor Prateek to whom the company owes ₹10,00,000 decided to reduce his claim by 40%. He is allotted 15,000 equity shares of ₹40 each in full satisfaction of the claim. (iv) Tax liability is settled at ₹75,000. (v) Fixed assets are written down by 30%. (vi) Current assets are revalued at ₹22,50,000. (vii) Investments be brought down to its market value. (viii) All fictitious assets be written-off. Pass journal entries in the books of the company and prepare capital reduction account.

Answer & Explanation:

In the books of Magna Ltd. Journal Entries Particulars Dr. (₹) Cr. (₹) Equity share capital (₹100) A/c Dr. 50,00,000 To Equity share capital (₹40) 20,00,000 To Capital Reduction A/c 30,00,000 (Being conversion of equity shares of ₹100 to ₹40 each as per scheme of reconstruction) 12% Cumulative Preference share capital (₹100) Dr. 25,00,000 To 12% Cumulative Preference share capital A/c (₹60) 15,00,000 To Capital Reduction 10,00,000 (Being conversion of 12% cumulative preference shares (₹100) to 12% preference shares of ₹60 each as per scheme of reconstruction) 10% Debenture A/c Dr. 20,00,000 To 12% Debenture 14,00,000 To Capital Reduction 6,00,000 (Being conversion of 10% Debentures (₹100) to 12% debentures of ₹70 each as per the scheme of reconstruction) Sundry creditors A/c Dr. 10,00,000 To Equity share capital A/c 6,00,000 To Capital Reduction A/c 4,00,000 (Being one creditor agreed to reduce their claim by 40% and accepted 15,000 equity shares @ ₹40 each) Tax Provision A/c Dr. 50,000 Capital Reduction A/c Dr. 25,000 To Bank A/c (Current assets) 75,000 (Being settlement of Tax liability) Capital Reduction A/c Dr. 49,75,000 To P&L A/c 2,00,000 To Preliminary expenses A/c 1,00,000 To Fixed assets A/c 18,75,000 To Current assets A/c 27,50,000 To Investment A/c 25,000 To Capital Reserve A/c 25,000 (Being amount of Capital reduction utilised in writing off fictitious assets and bringing down of fixed assets, current assets and Investments and balance transferred to capital reserve) Capital Reduction A/c Particulars Amount (₹) Particulars Amount (₹) To Bank A/c 25,000 By equity share capital A/c 30,00,000 To profit & loss A/c 2,00,000 By 12% Cum Preference shares A/c 10,00,000 To Preliminary Expense A/c 1,00,000 By 10% Debentures A/c 6,00,000 To Fixed assets A/c 18,75,000 By Sundry Creditors A/c 4,00,000 To Current assets A/c 27,50,000 To Investment A/c 25,000 To Capital Reserve A/c 25,000 Total 50,00,000 Total 50,00,000

Topics: Company Accounts

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