Model: Arrears of dividend on pref. shares (Surrender of shares) The balance sheet of Naina Lohia Ltd. as on 31 March 2011 was as follows:
|
Liabilities |
Assets |
||
|
1,50,000 Equity Shares of 310 Each |
15,00,000 |
Patents |
2,50,000 |
|
10,000, 10% Preference Shares of “100 |
10,00,000 |
Plant & Machinery |
15,00,000 |
|
Each |
Equipments |
50,000 |
|
|
Securities Premium |
4,50,000 |
Book Debts |
12,50,000 |
|
Loan (Unsecured) |
2,50,000 |
Inventories |
7,50,000 |
|
Creditors |
15,00,000 |
Bank Balance |
75,000 |
|
Expenses Due |
1,25,000 |
Preliminary Expenses |
25,000 |
|
Employees Provident Fund |
2,25,000 |
Profit & Loss A/c |
10,00,000 |
|
Goodwill |
1,50,000 |
||
|
50,50,000 |
50,50,000 |
Dividend on preference shares is in arrears for 5 years. The following scheme of reconstruction was approved by the Court:
- Equity shares are to be converted into 3,00,000 shares of Rs.5 each.
- Equity shareholders agreed to surrender to the company 80% of their holdings.
- Preference shareholders agreed to forego their right to unpaid dividend. They also agreed to reduce each preference share from Rs.100 to Rs.80.
- Creditors agreed to reduce their claim by two-fifths in consideration of their getting shares of Rs.1,80,000 out of surrendered equity shares.
- Unsecured loan is converted into Rs.1,50,000 equity shares out of shares surrendered and remaining amount of loan is waived.
- Surrendered shares not utilized are to be cancelled.
- Assets are to be reduced as follows:
Goodwill by Rs.1,50,000; plant by Rs.2,00,000; equipments by Rs.40,000; book debts by Rs.80,000; inventories by Rs.1,00,000. All intangible and fictitious assets are to be written off.
- Any surplus left should be utilized in writing down the machinery plant further.
- Cost of reconstruction amounted to Rs.50,000.
- Further 2,00,000 shares were issued to existing shareholders to increase working capital. The issue was fully subscribed and paid for.
Draft journal entries for the above arrangement. Also prepare reconstruction A/c.