Model: Issue of shares for arrears of preference dividend The summarized balance sheet of Somnath Ltd. as at December 2010 was as follows:
Balance Sheet of ABC Co. Ltd. as on….. (And Reduced)
|
Liabilities |
Assets |
||
|
Authorized & Issued Capital: |
Land & Buildings |
7,50,000 |
|
|
1,00,000 Equity Shares of 10 Each Fully |
10,00,000 |
Plant & Machinery |
5,00,000 |
|
Paid |
Goodwill |
1,00,000 |
|
|
5,000 6% Cumulative Pref. Shares of |
5,00,000 |
Patents &Trademarks |
50,000 |
|
100 Each Fully Paid |
Stocks |
2,00,000 |
|
|
Bank Overdraft |
3,50,000 |
Sundry Debtors |
1,50,000 |
|
Sundry Creditors |
2,50,000 |
Preliminary Expenses |
50,000 |
|
Note:The Cumulative Pref. Dividend is in |
Profit & Loss A/c |
3,00,000 |
|
|
Arrears for 3 Years) |
|||
|
21,00,000 |
21,00,000 |
A scheme of capital reduction was approved on the following terms:
- The preference shareholders agree that their shares be reduced to fully paid shares of Rs.50 each and to accept equity shares of Rs.54 each fully paid in lieu of the dividend arrears
- The equity shareholders agree that their shares be reduced to a fully paid value of Rs.5 each
- The authorized capital of the company is to remain at Rs.15,00,000 divided into 2,00,000 equity shares of Rs.5 each and 10,000 6% cumulative preference shares of Rs.50 each
- All the intangible and fictitious assets are to be eliminated and bad debts of Rs.25,000 and obsolete stocks of Rs.40,000 are to be written off
Give the necessary journal entries to record the capital reduction and draw up the revised balance sheet.