Model: Forfeiture of shares and utilizing the provision for taxes The following is the balance sheet of Leo Ltd. as at 31 March 2011:
|
Liabilities |
Assets |
||
|
Share Capital: |
Goodwill |
4,00,000 |
|
|
4,80,000 Equity Shares of Rs.10 Each: |
Machinery |
20,34,000 |
|
|
48,00,000 |
Furniture |
4,11,000 |
|
|
Less: Calls-in-Arrears (Rs.3) |
Stock |
8,20,000 |
|
|
Per Share on 1,20,000 Shares 3.60.000 |
44,40,000 |
Debtors |
6,00,000 |
|
Sundry Creditors |
6,17,000 |
Cash at Bank |
60,000 |
|
Provision for Taxation |
1,60,000 |
Preliminary Expenses |
60,000 |
|
P&L A/c 8,80,000 |
|||
|
Less: Profit for the Year 48,000 |
8,32,000 |
||
|
52,17,000 |
52,17,000 |
The directors have had a valuation made of the machinery and find it overvalued by Rs.4,00,000. It is proposed to write down this asset to its true value and to extinguish the deficiency in the P&L A/c and to write off goodwill and preliminary expenses, by the adoption of the following course:
- Forfeit the shares on which the call is outstanding
- Reduce the paid-up capital by Rs.3 per share
- Re-issue the forfeited share as fully paid shares of Rs.7 each at Rs.5 per share
- Utilize the provision for taxation, if necessary
- Draft the necessary journal entries
- Draw the company’s balance Sheet immediately after the implementation of the scheme of reconstruction