Model: Typical The balance sheet of A Ltd. as at 31 March 2011 was as follows:
|
Liabilities |
Assets |
||
|
Share Capital: |
Intangibles |
1,36,000 |
|
|
Authorized |
28,00,000 |
Freehold Premises at Cost |
2,80,000 |
|
1,28,000 8% Cumulative Preference |
12,80,000 |
Plant & Equipment at Cost |
4,80,000 |
|
Shares of ? 10 Each Fully Paid |
|||
|
1,28,000 Equity Shares of Z 10 Each, |
9,60,000 |
Investment in Shares in B Ltd. at Cost |
6,48,000 |
|
Rs. 7.50 Paid |
Stocks |
4,96,000 |
|
|
Loan from Directors |
1,20,000 |
Debtors |
6,40,000 |
|
Sundry Creditors |
8,80,000 |
Deferred Revenue Expenditure |
96,000 |
|
Bank Overdraft |
4,16,000 |
Profit & Loss A/c |
8,80,000 |
|
36,56,000 |
36,56,000 |
Note: The arrears of preference dividends amounted to Rs.1,02,400.
A Scheme of reconstruction was duly approved with effect from 1 April 2011 under the conditions stated in the following:
- The unpaid amount on equity shares would be called up.
- The preference shareholders would forego their arrears of dividends. In addition, they would accept a reduction of Rs.2.50 per share. The dividend rate would be enhanced to 10%.
- The equity shareholders would accept a reduction of Rs.7.50 per share.
- A Ltd. holds 43,200 shares in B. Ltd. This represents 15% of the share capital of that company. B Ltd. is not a quoted company. The average net profit (after tax) of the company is Rs.5,00,000. The shares would be valued based on 12% capitalization rate.
- A bad debt provision @ 2% would be created.
- The other assets would be valued as follows:
|
Intangibles |
96,000 |
|
Plant |
2,80,000 |
|
Freehold Premises |
7,60,000 |
|
Stocks |
5,00,000 |
- The P&L A/c debit balance and the balance standing to the debt of deferred revenue expenditure A/c would be eliminated.
- The directors would have to take equity shares at the new face value of Rs.2.50 per share in settlement of their loan.
- The equity shareholders, including the directors, who would receive equity shares in settlement of their loans, would take up two new equity shares for every one held.
- The preference shareholders would take up one new preference share for every four held.
- The authorized share capital would be restated to Rs.28,00,000.
- The new face value of the shares—preference & equity—will be maintained at their reduced levels. You are required:
- To prepare the necessary ledger accounts to effect the above
- To prepare the balance sheet of the company after reconstruction