Model: Dealing with taxes The following is the balance sheet of Sick Ltd as on 31 March 2011:
|
Liabilities |
Assets |
||
|
13% Cumulative Pref. Shares of .100 |
50,000 |
Fixed Assets |
7,50,000 |
|
Each |
|||
|
Equity Shares of Z10 Each |
3,50,000 |
Current Assets |
17,50,000 |
|
8% Debentures |
1,50,000 |
P&L A/c |
1,50,000 |
|
Current Liabilities |
19,50,000 |
||
|
Provision for Taxation |
1,50,000 |
||
|
26,50,000 |
26,50,000 |
The following scheme of reorganization is sanctioned:
- Fixed assets are to be written down by 331/2.
- Current assets are to be revalued at Rs.13,50,000.
- Preference shareholders decide to forego their right to arrows of dividend which are in arrears for 3 years.
- The taxation liability of the company is settled at Rs.2,00,000 and the same is paid immediately.
- One of the creditors of the company to whom it owes Rs.12,50,000 decides to forego 50% of his claim. He is allotted 50,000 equity shares of Rs.5 each in part satisfaction of the balance of his claim.
- The rate of interest on debentures is increased to 11%. The debenture holders surrender their debentures of Rs.100 each and exchange the same for fresh debentures of Rs.75 each.
- The existing equity and preference shares are reduced to Rs.5 and Rs.75 each, respectively.