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    Harsh Dube
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    The document contains questions regarding internal reconstruction for two companies, Risky Ltd and Hardship Ltd. For Risky Ltd, the summary includes a reduction in the paid-up value of equity and preference shares, settlement of creditors and other liabilities, and a capital call on equity shares. For Hardship Ltd, the summary outlines a reduction in the face value of preference and equity shares, write-offs of certain accounts, settlement of claims and liabilities, and conversion of loans to equity shares. Journal entries and capital reduction accounts are required to be prepared for the internal reconstruction schemes of both companies.

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    The document contains questions regarding internal reconstruction for two companies, Risky Ltd and Hardship Ltd. For Risky Ltd, the summary includes a reduction in the paid-up value of equity and preference shares, settlement of creditors and other liabilities, and a capital call on equity shares. For Hardship Ltd, the summary outlines a reduction in the face value of preference and equity shares, write-offs of certain accounts, settlement of claims and liabilities, and conversion of loans to equity shares. Journal entries and capital reduction accounts are required to be prepared for the internal reconstruction schemes of both companies.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    64 views2 pages

    Question Sheet

    Uploaded by

    Harsh Dube
    The document contains questions regarding internal reconstruction for two companies, Risky Ltd and Hardship Ltd. For Risky Ltd, the summary includes a reduction in the paid-up value of equity and preference shares, settlement of creditors and other liabilities, and a capital call on equity shares. For Hardship Ltd, the summary outlines a reduction in the face value of preference and equity shares, write-offs of certain accounts, settlement of claims and liabilities, and conversion of loans to equity shares. Journal entries and capital reduction accounts are required to be prepared for the internal reconstruction schemes of both companies.

    Copyright:

    © All Rights Reserved
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    of 2

    QUESTIONS ON INTERNAL RECONSTRUCTION

    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.

    4. Following is the Balance Sheet of Risky Ltd as on 31st March, 2021.


    Liabilities Rs Assets Rs
    10% Pref Shares of Rs. 10 each 4,80,000 Premises 6,40,000
    Equity Shares of Rs. 10 each 8,00,000 Plant and Machinery 10,40,000
    5% Debentures of Rs. 100 each 9,60,000 Investments 2,40,000
    Sundry Creditors 4,00,000 Stock 2,88,000
    Bank Overdraft 2,40,000 Debtors 1,92,000
    Other Liabilities 3,20,000 Deposits and Advances 80,000
    Preliminary Expenses 3,20,000
    P & L (Dr Balance) 4,00,000
    32,00,000 32,00,000

    Note: Preference dividend is in arrears for 3 years.


    Scheme of reconstruction was accepted by the stakeholders and duly approved by the
    National Company Law Tribunal.
    Following points were approved under the scheme of reconstruction:
    1. Plant and machinery having book value of Rs. 1,60,000 is declared obsolete. This is
    sold as scrap for Rs. 32,000/-.
    2. Depreciation on Plant and Machinery is to be charged at Rs. 80,000/-.
    3. Stock includes items valued at Rs. 96,000/- which were sold at a loss of 50%.
    1
    QUESTIONS ON INTERNAL RECONSTRUCTION

    4. The present realizable value of investment is Rs. 1,12,000/-.


    5. Arrears of Preference Dividend is not payable.
    6. Reconstruction expenses amounted to Rs. 16,000/-.
    7. It was agreed to reduce the paid-up value of Equity Shares to Rs. 2 per share and
    that of Preference Shares to Rs. 5 per share. However, the face value of both the
    shares to remain unchanged.
    8. The creditors were settled as:
    (a) 20% immediate payment in cash.
    (b) 40% amount being cancelled.
    (c) 40% paid by issue of 6% Debentures.
    9. Other liabilities of Rs. 80,000 is to be cancelled.
    10. A call of Rs. 3 per share on Equity Share was made and duly received.
    You are required to pass journal entries and prepare Capital Reduction A/c in the
    books of Risky Ltd.

    5. Following is the Balance Sheet of Hardship Ltd as on 31st March, 2021:


    Liabilities Rs Assets Rs
    14,000 8% Cumulative Pref Goodwill 3,30,000
    Shares of Rs. 100 each 14,00,000 Land and Building 12,00,000
    1,60,000 Equity Shares of Rs. 10 Inventories 4,40,000
    each 16,00,000 Sundry Debtors
    9% Debentures of Rs. 100 each 7,00,000 Good 7,40,000
    (Secured on Land & Building) Doubtful 1,20,000
    Accrued Interest on Debentures 31,500 Bank Balance 5,60,000
    Director’s Loan 1,40,000 Preliminary Expenses 20,000
    Sundry Creditors 6,20,000 P & L A/c (Dr. Balance) 10,81,500

    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.
    2

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