Model: Maintenance of working capital ABC Ltd., whose balance sheet as on 31 March 2011 given in the following, formulated a scheme of reconstruction details of which follow and secured approval of all concerned :
|
Liabilities |
Rs. |
Assets |
Rs. | |
|
2,00,000 Equity Shares of 520 Each 310 |
20,00,000 |
Fixed Assets |
22,40,000 |
|
|
Paid |
||||
|
8% 16,000 Pref. Shares of 3100 Each, |
12,00,000 |
Patents & Copyrights |
1,60,000 |
|
|
Z 75 Paid up |
||||
|
19% Debentures |
12,00,000 |
Investments at Cost |
(Market Value |
1,30,000 |
|
Interest Due there on |
2,16,000 |
Z 1,10,000) |
||
|
Bank Overdraft |
3,00,000 |
Current Assets |
16,98,000 |
|
|
Sundry Creditors (Including Interest of |
1,68,000 |
Profit & Loss A/c |
8,56,000 |
|
|
Rs. 30,000 Due to Bank) |
||||
|
50,84,000 |
50,84,000 |
Preference dividend is in arrears for 1 year.
- Preference shareholders to give up their claims, inclusive of dividends, to the extent of 30% and desire to be paid off.
- Debenture holders agree to give up their claims to interest in consideration of their rate of interest being enhanced to 10%.
- Bank agrees to give up 50% of its interest outstanding in consideration of their claim being paid off at once.
- Sundry creditors would like to grant a discount of 5% if they were to be paid off immediately.
- Balances of P&L A/c, patents & copyrights and 25% of the sundry debtors of Rs.2,40,000 to be written off. Fixed assets to be written down by Rs.28,000. Investments to reflect their market value.
- To the extent not specifically stated, equity shareholders suffer no reduction of their rights.
- Cost of reconstruction is Rs.6,700.
Pass journal entries in the books of the company assuming that the scheme has been put through fully with the equity shareholders bringing in necessary cash to pay off the parties and to leave a working capital of Rs.4,40,000. Draw the balance sheet after reconstruction.