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Question Sheet
Question Sheet
1. Pass journal entries for the following scenarios under scheme of Internal
Reconstruction:
a. Conversion of 2,00,000 fully paid up Equity Shares of Rs. 10 each into Equity
Stock of Rs. 1,00,000 and balance as 13% fully Convertible Debentures.
b. Consolidation of 40,00,000 fully paid up Equity shares of Rs. 2.50 each into
10,00,000 fully paid Equity shares of Rs. 10 each.
c. Sub-division of 10,00,000 fully paid 10% Preference Shares of Rs. 50 each into
50,00,000 fully paid 10% Preference Shares of Rs. 10 each.
d. Conversion of 11% Cumulative Preference Shares of Rs. 5,00,000 into 13%
Non-Cumulative Preference Shares of Rs. 3,00,000 and balance as 12%
Non-Cumulative Preference shares.
2. Pass journal entries for the following scenarios under scheme of Internal
Reconstruction:
a. Creditors of Rs. 30,000/- are finally settled by cash payment of Rs. 23,000/-.
b. Sundry Creditors showed a balance of Rs. 2,00,000/-. 75% of their claim was
settled by cash payment of 20% and a sacrifice of 80%.
c. 9% 1,00,000 Preference Shares of Rs. 10/- (fully paid up) each reduced to same
number of shares of Rs. 8/- each both FV and PUV.
d. 1000 12% Debentures of Rs. 100/- each are settled at 90% by issue at par of equity
shares of Rs. 10 each and the balance is settled in cash.
3. Pass journal entries for the following scenarios under scheme of Internal
Reconstruction:
a. Sundry Creditors of Rs. 2,00,000 agreed to accept 10% Debentures to the extent of
60% of their claims as full settlement.
b. 11% Preference shareholders agreed to forego their claim of Rs. 80,000 on account
of arrears of preference dividend.
c. 12% Preference shareholders of Rs. 1,20,000 agreed to accept Equity shares of Rs.
1,00,000 in full settlement of their claim.
d. Issued 1,00,000 Equity shares of Rs. 10 each for generating working capital.
44,91,500 44,91,500
Contingent Liabilities:
1. Arrears of Cumulative Preference Dividend for 2 years.
2. Claims for damages pending in the court of law Rs. 2,00,000/-.
The following scheme of reconstruction was approved:
(a) 8% Preference Shares of Rs. 100 each were to be reduced to an equal number of
fully paid up preference shares of Rs. 60 each.
(b) Equity Shares of Rs. 10 each were to be reduced to an equal number of fully paid
Equity Shares of Rs. 2.50 each.
(c) Goodwill, Preliminary Expenses and Accumulated Losses are to be written off.
(d) 8% Preference shareholders agreed to waive one year’s dividend and to accept
equity shares of Rs. 2.50 each fully paid for the balance of arrears of dividend.
(e) Inventories to be revalued at Rs. 4,00,000 and doubtful debtors to be written off.
(f) 9% Debenture holders agreed to take over part of the security of the book value of
Rs. 4,00,000 for Rs. 5,00,000 in part satisfaction of their claim and agreed to waive
the interest payable to them.
(g) Sundry Creditors agreed to forego Rs. 20,000 subject to the condition that the
company must pay them half of the remaining amount immediately.
(h) The contingent liability for the claim of damages materialized to the extent of 50%,
which the company paid immediately.
(i) The directors agreed to convert their loan into Equity shares of Rs. 2.50 each fully
paid.
You are required to pass journal entries and prepare Capital Reduction A/c in the
books of Hardship Ltd.
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