Internal Reconstruction PQ Sol
Internal Reconstruction PQ Sol
Internal Reconstruction PQ Sol
INTERNAL RECONSTRUCTION
Solution 1
Journal Entries
Particulars Debit (₹) Credit (₹)
June Equity share capital A/c Dr. 4,00,000
2019 To Equity Stock A/c 4,00,000
(Being conversion of 4,000 fully paid Equity Shares of ₹ 100
into ₹ 4,00,000 Equity Stock)
June Equity Stock A/c Dr. 4,00,000
2020 To Equity share capital A/c 4,00,000
(Being re-conversion of ₹ 4,00,000 Equity Stock into 40,000
shares of ₹ 10 fully paid Equity Shares)
Notes to Accounts
₹
As at 31.12.2018
1. Share Capital
Authorized share capital
5,000 Equity shares of ₹ 100 each 5,00,000
Issued, subscribed and paid up
4,000 Equity shares of ₹ 100 each fully called up & paid up 4,00,000
As at 31.12.2019
1. Share Capital
Authorized share capital
5,000 Equity shares of ₹ 100 each 5,00,000
Issued, subscribed and paid up
Equity Stock - 4,000 Equity Shares of ₹ 100 converted into Stock 4,00,000
As at 31.12.2020
1. Share Capital
Authorized share capital
50,000 Equity shares of ₹ 10 each 5,00,000
Issued, subscribed and paid up
40,000 Equity shares of ₹ 10 each fully called up & paid up 4,00,000
Solution 2
In the Books of Hema Ltd.
Journal Entries
Particulars Debit (₹) Credit (₹)
A 8% Preference share capital A/c (₹100 each) Dr. 4,00,000
To 8% Preference share capital A/c (₹80 each) 3,20,000
To Capital reduction A/c 80,000
B Equity share capital A/c (₹10 each) Dr. 10,00,000
To Equity share capital A/c (₹2 each) 2,00,000
To Capital reduction A/c 8,00,000
C Capital reduction A/c Dr. 32,000
To Equity share capital A/c (₹2 each) 32,000
D (a) 6% Debentures A/c Dr. 3,00,000
To Debenture holders A/c 3,00,000
(b) Debenture holders A/c Dr. 3,00,000
To Freehold property A/c 3,00,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing
2
E Accrued debenture interest A/c Dr. 24,000
To Bank A/c 24,000
F Freehold property A/c Dr. 1,50,000
To Capital reduction A/c 1,50,000
G Bank A/c Dr. 2,50,000
To Trade investment A/c 2,00,000
To Capital reduction A/c 50,000
H Director’s loan A/c Dr. 3,00,000
To Equity share capital A/c (₹2 each) 75,000
To Capital reduction A/c 2,25,000
I Capital Reduction A/c Dr. 7,65,000
To Profit and loss A/c 5,25,000
To Trade receivables A/c 90,000
To Inventories A/c 1,20,000
To Bank A/c (10% of ₹3,00,000) 30,000
J Capital Reduction A/c Dr. 5,08,000
To Capital Reserve A/c 5,08,000
Solution 3
Journal Entries in the books of M/s. Planet Ltd.
Particulars Debit Credit
(In lakhs) (In lakhs)
(i) 8% Preference share capital A/c (₹100 each) Dr. 600
To 8% Preference share capital A/c (₹75 each) 450
To Capital Reduction A/c 150
(Being the preference shares of ₹100 each reduced to ₹ 75 each as
per the approved scheme)
(ii) Equity share capital A/c (₹10 each) Dr. 1,500
To Equity share capital A/c (₹ 2 each) 300
To Capital Reduction A/c 1,200
(Being the equity shares of ₹10 each reduced to ₹2 each)
(iii) Capital Reduction A/c Dr. 48
To Equity share capital A/c (₹2 each) 48
(Being 1/3rd arrears of preference share dividend of 3 years to be
satisfied by issue of 24 lakhs equity shares of ₹ 2 each)
(iv) 6% Debentures A/c Dr. 450
To Freehold property A/c 450
(Being claim of Debenture holders settled in part by transfer of
freehold property)
(v) Accrued debenture interest A/c Dr. 36
To Bank A/c 36
(Being debenture interest paid)
(vi) Freehold property A/c Dr. 175
To Capital Reduction A/c 175
(Being appreciation in the value of freehold property)
(vii) Bank A/c Dr. 425
To Investments A/c 300
To Capital Reduction A/c 125
(Being investment sold at profit)
(viii) Director’s loan A/c Dr. 450
To Equity share capital A/c (₹2 each) 135
To Capital Reduction A/c 315
(Being director’s loan waived by 70% and balance being
discharged by issue of 67.5 lakhs equity shares of ₹2 each)
(ix) Capital Reduction A/c Dr. 1,917
To Profit and loss A/c 783
To Sundry debtors A/c (675x40%) 270
To Stock-in-trade A/c (450 x 80%) 360
To Bank A/c (900 x 8%) 72
To Capital reserve A/c 432
(Being certain value of various assets, penalty on cancellation of
contract, P&L A/c W/off & balance transferred to capital reserve)
Bank Account
(₹ in lakhs) (₹ in lakhs)
To Balance b/d 6 By Accrued Debenture interest 36
To Investments 300 By Capital Reduction 72
To Capital Reduction 125 By Balance c/d 323
431 431
Solution 4
Journal Entries in the books of SK Ltd
₹ ‘000 ₹ ‘000
(i) Equity share capital (₹ 10) A/c Dr. 35,000
To Equity Share Capital (₹ 4) A/c 14,000
To Capital Reduction A/c 21,000
(Being conversion of equity share capital of ₹ 10 each into ₹ 4 each
as per reconstruction scheme)
(ii) 8% Cumulative Preference Share capital (₹ 100) A/c Dr. 17,500
To 8% Cumulative Preference Share Capital (₹ 60) A/c 10,500
To Capital Reduction A/c 7,000
(Being conversion of 6% cumulative preference shares capital of ₹
100 each into ₹ 60 each as per reconstruction scheme)
(iii) 6% Debentures (₹ 100) A/c Dr. 14,000
To 9% Debentures (₹ 80) A/c 11,200
To Capital Reduction A/c 2,800
Solution 5
In the books of X Ltd.
Journal Entries
31st March, 2020 ₹ ₹
(i) Equity share capital A/c (₹ 100) Dr. 24,00,000
To Equity Share capital A/c (₹ 40) 9,60,000
To Capital Reduction A/c 14,40,000
(Being 24,000 equity shares of ₹100 each reduced to ₹40 each fully paid
up)
(ii) 10% Preference Share Capital A/c (₹ 100) Dr. 12,00,000
To 10% Preference Share Capital A/c (₹ 75) 9,00,000
To Capital Reduction A/c 3,00,000
(Being 12,000 Preference shares of ₹100 each reduction to ₹75 each fully
paid up)
(iii) 10% Debentures A/c Dr. 6,00,000
To Inventories A/c 2,60,000
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No part of these notes may be reproduced in any manner without his prior permission in writing
6
To Trade receivables A/c 2,80,000
To Capital Reduction A/c 60,000
(Being debenture holders given Inventories and Trade receivables in full
settlement of their claims)
(iv) Land & Building A/c Dr. 3,60,000
To Capital Reduction A/c 3,60,000
(Being Land & Building appreciated by 30%)
(v) Capital Reduction A/c Dr. 5,000
To Cash A/c 5,000
(Being expenses of reconstruction paid)
(vi) Capital Reduction A/c Dr. 20,70,000
To Goodwill A/c 90,000
To Profit and Loss A/c 14,40,000
To Plant & Machinery A/c 5,40,000
(Being various losses written off, assets written down through Capital
Reserve A/c)
(vii) Capital Reduction Dr. 85,000
To Capital Reserve A/c (Bal. Fig.) 85,000
(Being balance in Capital Reduction A/c transferred to Capital reserve
A/c)
Notes of accounts
₹
1. Share Capital
Issued subscribed and paid up
Equity share capital
68,000 equity shares of ₹1 each 68,000
Preference share capital
15,000 8% Cumulative Preference shares of ₹2.50 each 37,500
1,05,500
2 Reserves and Surplus
Capital Reserve 30,800
3. Property, Plant & Equipment
Leasehold Property 85,000
Plant & Machinery 1,00,000
1,85,000
4. Cash & Cash Equivalents
Bank A/c (20,000+32,000-7,000+6,300) 51,300
Solution 7
Journal Entries in the books of Fortunate Ltd
S.No. Particulars L.F Debit Credit
Equity share capital A/c (₹50) Dr. 9,37,500
To Equity share capital A/c (₹5) 93,750
1. To Capital reduction A/c* 8,43,750
(Being equity capital reduced to nominal value of ₹5
each)
Bank A/c Dr. 2,81,250
To Equity share capital 2,81,250
2.
(Being 3 right shares against each share was issued and
subscribed)
8% Preference share capital A/c (₹50) Dr. 7,50,000
3.
Capital reduction A/c Dr. 75,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing
9
To 6% Preference share capital (₹10) 6,00,000
To Equity share capital (₹50) 2,25,000
(Being 8% preference shares of ₹50 each converted to 6%
preference shares of ₹10 each and also given to them 3
equity shares for every share held)
Loan A/c Dr. 1,87,500
To 6% Preference share capital A/c(15,000 x ₹10) 1,50,000
4. To Equity share capital A/c (7,500 x ₹5) 37,500
(Being loan to the extent of ` 1,50,000 converted into
share capital)
Bank A/c (25,000 x ₹5) Dr. 1,25,000
5. To Equity share application A/c 1,25,000
(Being shares subscribed by the directors)
Equity share application A/c Dr. 1,25,000
6. To Equity share capital A/c 1,25,000
(Being application money transferred to capital A/c)
Loan A/c Dr. 2,50,000
7. To Bank A/c 2,50,000
(Being loan repaid)
Solution 8
Working Notes:
Solution 9
Journal Entries in the Books of Z Ltd.
Particulars Debit (₹) Credit (₹)
1 Equity share capital A/c (₹ 10) Dr. 50,00,000
To Equity share capital A/c (₹ 5) 25,00,000
To Reconstruction A/c 25,00,000
(Being conversion of 5,00,000 equity shares of ₹ 10 each fully
paid into same number of fully paid equity shares of ₹ 5 each as
per scheme of reconstruction.
2 9% Preference share capital A/c (₹ 100) Dr. 20,00,000
To 10% Preference share capital A/c (₹ 50) 10,00,000
To Reconstruction A/c 10,00,000
(Being conversion of 9% preference share of ₹ 100 each into
same number of 10% preference share of ₹ 50 each and claims
of preference dividends settled as per scheme of reconstruction.)
3 10% Secured Debentures A/c Dr. 9,60,000
Trade payables A/c Dr. 1,00,000
Interest on Debentures Outstanding A/c Dr. 96,000
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No part of these notes may be reproduced in any manner without his prior permission in writing
13
Bank A/c Dr. 1,00,000
To 12% Debentures A/c 6,78,000
To Reconstruction A/c 5,78,000
(Being ₹ 11,56,000 due to Y (including trade payables) cancelled
and 12% debentures allotted for the amount after waving 50% as
per scheme of reconstruction.)
4 10% Secured Debentures A/c Dr. 6,40,000
Trade payables A/c Dr. 60,000
Interest on Debentures Outstanding A/c Dr. 64,000
Bank A/c Dr. 60,000
To 12% Debentures A/c 4,42,000
To Reconstruction A/c 3,82,000
(Being ₹ 7,64,000 due to Z (including trade payables) cancelled
and 12% debentures allotted for the amount after waving 50% as
per scheme of reconstruction.)
5 Trade payables A/c Dr. 1,70,000
To Reconstruction 1,70,000
(Being remaining trade payables sacrificed 50% of their claim.)
6 Director’s Loan A/c Dr. 1,00,000
To Equity share capital A/c (₹ 5) 40,000
To Reconstruction 60,000
(Being Directors' loan claim settled by issuing 12,000 equity
shares of ₹ 5 each as per scheme of reconstruction.)
7 Reconstruction A/c Dr. 15,000
To Bank A/c 15,000
(Being payment made towards penalty of 5% for cancellation of
capital commitments of ₹ 3 Lakhs.)
8 Bank A/c Dr. 1,00,000
To Reconstruction A/c 1,00,000
(Being refund of fees by directors credited to reconstruction
A/c.)
9 Reconstruction A/c Dr. 15,000
To Bank A/c 15,000
(Being payment of reconstruction expenses.)
10 Provision for Tax A/c Dr. 1,00,000
To Bank A/c 75,000
To Reconstruction A/c 25,000
(Being payment of tax liability in full settlement against
provision for tax)
11 Land and Building A/c Dr. 2,00,000
To Reconstruction A/c 2,00,000
(Being appreciation in value of Land & Building recorded)
12 Reconstruction A/c Dr. 49,85,000
To Goodwill A/c 10,00,000
To Patent A/c 5,00,000
To Profit and loss A/c 14,60,000
To Discount on Issue of Debentures A/c 1,00,000
To Plant & Machinery A/c 6,50,000
To Furniture and Fixture A/c 1,00,000
To Trade Investment A/c 50,000
To Inventory A/c 2,50,000
To Trade Receivables A/c 1,00,000
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing
14
To Capital Reserve A/c (Bal. Fig.) 7,75,000
(Being writing off of losses and reduction in the value of assets,
balance of reconstruction A/c transfer to Capital Reserve.)
Solution 10
Journal Entries
₹ ₹
1 First Debentures A/c Dr. 3,60,000
Second Debentures A/c Dr. 3,60,000
Unsecured Trade Payables A/c Dr. 1,08,000
To A 8,28,000
(Being A’s total liability ascertained)
2 A Dr. 2,52,000
To Capital Reduction A/c 2,52,000
(Being cancellation of debt up to ₹ 2,52,000 )
3 Bank A/c Dr. 36,000
To A 36,000
(Being cash received in course of settlement)
4 A 6,12,000
To First Debentures A/c 6,12,000
(Being liability of A, discharged against first debentures)
5 Second Debentures A/c Dr. 3,60,000
Unsecured Trade Payables A/c Dr. 72,000
To A 4,32,000
(Being B’s total liability ascertained)
6 B Dr. 4,32,000
To Bank A/c 1,08,000
To Capital Reduction A/c 3,24,000
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No part of these notes may be reproduced in any manner without his prior permission in writing
15
(Being B’s liability discharged in satisfaction of all claims )
7 Unsecured Trade Payables A/c Dr. 3,60,000
To Equity Share Capital A/c 1,62,000
To Loan (Unsecured) A/c 1,44,000
To Capital Reduction A/c 54,000
(Being settlement of unsecured Trade payables)
8 Share Call A/c Dr. 3,20,000
To Equity Share Capital A/c 3,20,000
(Being final call due)
9 Bank A/c Dr. 3,20,000
To Share call A/c 3,20,000
(Being final call money received)
10 Share Capital (₹ 100) A/c Dr. 8,00,000
To Share Capital (₹ 25) A/c 2,00,000
To Capital Reduction A/c 6,00,000
(Being share capital reduced to ₹25 each)
11 Capital Reduction A/c Dr. 11,68,000
To Profit and Loss A/c 11,68,000
(Being amount of capital reduction utilized in writing off P & L
A/c (Dr.) balance)
12 Capital Reduction A/c Dr. 62,000
To Capital Reserve A/c 62,000
(Being balance of capital reduction transferred to capital reserve)
Working Notes:
1. Settlement of claim of remaining unsecured Trade payables
60% of ₹3,60,000 2,16,000
Considering their claim for share of ₹100 each
2,16,000/100 =2,160 shares
Less: Number of shares to be issued
2,160 x 3= 6,480 shares of ₹ 25 each (1,62,000)
Transferred to Capital reduction A/c 54,000
2. Ascertainment of profit and loss account’s debit balance at the time of reconstruction
Assets
Fixed assets (3,80,800 + 2,87,200) 6,68,000
Cash 3,24,000 9,92,000
Less: Capital & Liabilities
Share capital 4,80,000
1st Debentures 3,60,000
2nd Debentures 7,80,000
Unsecured trade payables 5,40,000 (21,60,000)
Profit and loss A/c (Debit balance) (11,68,000)
Solution 11
In the books of Preet Limited
Journal Entries
₹ ₹
(i) Equity Share capital (₹100) A/c Dr. 20,00,000
To Share surrender A/c 10,00,000
To Equity share capital (₹10) A/c 10,00,000
(Being the sub-division of 20,000 equity shares of ₹100 each into
The copyright of these notes is with C.A. Nitin Goel
No part of these notes may be reproduced in any manner without his prior permission in writing
16
2,0,000 equity shares of ₹10 each and surrender of 1,00,000 of such
sub-divided shares as per capital reduction scheme)
(ii) 15% Debentures A/c Dr. 3,00,000
Accrued interest A/c Dr. 45,000
To Capital Reduction A/c 3,45,000
(Being the transfer of 50% of the claims of the debentureholders to
Reconstruction A/c in consideration of which 10% Preference
shares are being issued, out of share surrender A/c as per capital
reduction scheme)
(iii) Trade Payables A/c Dr. 1,04,000
To Capital Reduction A/c 1,04,000
(Being the transfer of trade payables to Reconstruction A/c, 25% of
which is waived and equity shares are issued in consideration of the
balance amount)
(iv) Share Surrender A/c Dr. 10,00,000
To 10% Preference share capital A/c 2,00,000
To Equity share capital A/c 78,000
To Capital Reduction A/c 7,22,000
(Being issue of preference & equity shares from surrendered equity
shares to discharge the claims of debentureholders and the creditors
respectively as per scheme and the balance in share surrender
account is transferred to reconstruction account for cancellation)
(v) Capital Reduction A/c Dr. 11,71,000
To Profit & Loss A/c 11,60,000
To Capital Reserve A/c 11,000
(Being the adjustment of the debit balance of profit & loss a/c against
reconstruction account & balance is transferred to capital reserve a/c)
1 Share Capital
1,07,800 Equity shares of ₹10 each 10,78,000
20,000 10% Preference share of ₹10 each 2,00,000
(all the above shares are allotted as fully paid up pursuant to capital reduction
scheme by conversion of equity shares without payment received in cash)
12,78,000
2 Reserves and Surplus
Capital Reserves 11,000
3. Long-term borrowings
Unsecured
15% Debentures 3,00,000
4. Other current liabilities
Accrued interest on 15% Debentures 45,000
5. Short-term provisions
Provision for income tax 72,000
6. Property, Plant & Equipment
Machineries 7,00,000
7. Cash and cash equivalents
Balances with banks 40,000