Surrender of Shares – TaxDose.com

Surrender of Shares :

The shareholders are made to surrender their shares. The shares are then allotted to debenture holders and creditors. Unutilized shares are cancelled.

Illustration :

A Mills Ltd., decided to have internal reconstruction. The Balance Sheet of the Company as on 31st March, 2013 was as follows:

A Mills Ltd.
Balance Sheet as at 31st March, 2013

Particulars	Note No.	Amount(Rs.)
I. Equity and Liabilities
(1) Shareholders’ Funds
(a) Share Capital
Authorized, Issued and Subscribed :
10,000 10% Cumulative
Preference Shares of `10 each		1,00,000
25,000 Equity Shares of `10 each		2,50,000
(b) Reserves and Surplus
Securities Premium Reserves		25,000
General Reserve Nil
Less: P& L A/c Dr. Balance 1,10,000		(1,10,000)
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
(a) Long Term Borrowing
10%, 800 Debentures of `100 each
(Secured on freehold property)		80,000
(4) Current Liabilities
Trade Payables		30,000
Creditors for Expenses		11,000
Interest Accrued on Debentures		4,000
Total		3,90,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
(i) Tangible Assets
Freehold Property		75,000
Leasehold Property		1,00,000
Plant and Machinery		60,000
(ii) Intangible Assets
Goodwill		50,000
(b) Non-Current Investments		25,000
(2) Current Assets
Other Current Assets		60,000
Share Issue Expenses		20,000
Total		3,90,000

Preference dividends are in arrears for two years. A scheme for reduction of capital was sanctioned by the court as follows:
– 10% cumulative preference shares of `10 each to be reduced to `8 per share.
– Equity shares of `10 each to be reduced to `4 per share.
– After reduction, both the shares are to be consolidated into shares of `10.
– The authorized capital to be restored to `1,00,000 in 10% cumulative preference shares of `10 each and Rs.2,50,000 in equity shares of `10 each.
– One (new) equity share of `10 each is to be issued for every `40 of gross preference dividend in arrears.
– The debenture holders agreed to take over the freehold property at `1,30,000 and paid the balance to the company after satisfying their claim.
– Fictitious and intangible assets are to be written off.
– The value of assets is to be as follows:
Leasehold Property Rs.80,000
Plant and Machinery Rs.50,000
Current Assets Rs.40,000
– Investments realized Rs.10,000.
– Securities premium reserve balance is allowed to be utilized.
The scheme as sanctioned by the court was implemented.
You are required to prepare
(i) Journal entries for reduction of share capital and consolidation of preference shares and equity shares.
(ii) Capital Reduction Account
(iii) Cash Account
(iv) Balance Sheet after reduction.

Solution

Journal Entries

Particulars	Debit Amount(Rs).	Credit Amount Rs)
10% Cumulative Preference Share Capital (`10) A/c Dr.	1,00,000
To Capital Reduction A/c		20,000
To 10% Cumulative Preference Share Capital (`8) A/c		80,000
(Being reduction of 10,000 10% cumulative preference shares of `10 each to shares of `8 each as per scheme of capital redemption sanctioned by the court).

Equity Share Capital (`10) A/c Dr.	2,50,000
To Capital Reduction A/c		1,50,000
To Equity Share Capital (`4) A/c		1,00,000
(Being reduction of 25,000 10% equity shares of `10 each into shares of `4 each as per scheme of capital reduction sanctioned by the court).

10% Cumulative Preference Share Capital (`8) A/c Dr.	80,000
To 10% Cumulative Preference Share Capital(New `10) A/c		80,000
(Being consolidation of 10,000, 10% preference shares of `8 each into 8,000 10% Cumulative Preference Shares of `10 each)

Equity Share Capital (`4) A/c Dr.	1,00,000
To Equity Share Capital (New `10) A/c		1,00,000
(Being consolidation of 25,000 10% equity shares of `4 each into 10,000 equity shares of `10 each)

CAPITAL REDUCTION ACCOUNT

Particulars	Rs.	Particulars	Rs.
To Equity Share Capital (New `10) each (See note)	5,000	By 10% Cumulative Preference Share Capital (`10) A/c	20,000
To Leasehold Property	20,000	By Equity Share Capital (`10) A/c	1,50,000
To Plant and Machinery	10,000	By Securities Premium Rserve	25,000
To Current Assets	20,000	By Freehold Property A/c (Profit)	55,000
To Loss on Sale of Investments	15,000
To Goodwill written off	50,000
To Share Issue Expenses	20,000
To Profit & Loss A/c Dr. Balance	1,10,000
	2,50,000		2,50,000

Note:
Arrears of Preference Dividend = 2 x 10% of Rs.1,00,000 =Rs.20,000
To be discharged in equity shares for arrears of every Rs.40 =Rs.20,000/Rs.40 = 500 shares ofRs.10 each =Rs.5,000

CASH ACCOUNT

Particulars	Rs.	Particulars	Rs.
To Freehold Property 1,30,000		By Balance c/d	56,000
Less : Debenture holders 84000	46,000
To Investments A/c	10,000		————–
	56,000		56,000

BALANCE SHEET OF A Mills Ltd. (and Reduced)
As on 31st March, 2013

Particulars	Note No.	Amount (Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
Authorized :
10,000 10% Cumulative Preference
Shares of `10 each		1,00,000
25,000 Equity Shares of `10 each		2,50,000
Issued Subscribed and Paid-up:
8,000 10% Cumulative Preference Shares of `10 each		80,000
10,500 Equity Shares of `10 each (of the above 10,500 equity shares
500 equity shares were issued for consideration other than cash)		1,05,000
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
(4) Current Liabilities
Trade Payables 11,000
Creditors for Expenses 30,000
Total		2,26,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
(i) Tangible Assets
Leasehold Property 1,00,000
Less : Written off under
reconstruction
Scheme dated………. 20,000		80,000
Plant and Machinery 60,000
Less : Written off under
reconstruction scheme
dated……. 10,000		50,000
(2) Current Assets
Cash		56,000
Other Current Assets		40,000
Total		2,26,000

ILLUSTRATION :

Balance Sheet of SII Ltd.
As on 31st March, 2013 appears as below

Particulars	Note No.	Amount(Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
1,50,000 Equity Shares of `10 each fully paid		15,00,001
5,000 11% preference shares of `100 each fully paid		5,00,001
(b) Reserves and Surplus
General Reserve Nil
Less: Debit balance of P&L a/c 16,40,000		(16,40,000)
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
11% Debentures		5,00,000
Unsecured loans		5,00,000
(4) Current Liabilities
Bank Overdraft		6,30,000
Interest accrued on loans		1,50,000
Interest Accrued and due on debentures		1,10,000
Other current liabilities		5,00,000
Total		27,50,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
Tangible Asset 20,00,000
Less : Depreciation Reserve ___15,00,000___		5,00,000
(2) Current Assets
Stock and Stores		6,00,000
Trade Receivables		14,50,000
Other Current Assets		2,00,000
Total		27,50,000

A scheme of reconstruction has been agreed amongst the shareholders and the creditors with the following salient features:

(a) Interest due on unsecured loans is waived.

(b) 50% of the interest due on the debentures is waived

(c) The 11% preference shareholders’ rights are to be reduced to 50% and converted into 15% Debentures of Rs.10 each.
(d) Current liabilities would be reduced by Rs.50,000 on account of provision no longer required.

(e) The banks agree to the arrangement and to increase the cash credit/overdraft limits by Rs.1,00,000 upon the shareholders agreeing to bring in a like amount by way of new equity.

(f) Besides additional subscription as above, the equity shareholders agree to convert the existing equity shares into new 10 rupees shares of total value Rs.5,00,000.

(g) The debit balance in the Profit & Loss Account is to be wiped out,Rs.2,60,000 provided for doubtful debts and the value of fixed assets increased by Rs.4,00,000.

Redraft the Balance Sheet of the company based on the above scheme of reconstruction.

Solution

Balance Sheet of SII Ltd. (and reduced)
As on 31st March, 2013

Particulars	Note No.	Amount(Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
60,000 Equity Shares of `10 each fully paid		6,00,000
(b) Reserves and Surplus
Capital Reserve		5,000
(2) Share Application Money pending allotment		0
(3) Non-Current Liabilities
11% Debentures		5,00,000
15% Debentures		2,50,000
Unsecured loans		5,00,000
(4) Current Liabilities
Bank Overdraft (6,30,000-1,00,000)		5,30,000
Interest Accrued and due on debentures		55,000
Other current liabilities (5,00,000-50,000)		4,50,000
Total		28,90,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
(i) Tangible Assets 24,00,000
Less : Depreciation Reserve 15,00,000		9,00,000
(2) Current Assets
Stock and Stores		6,00,000
Receivables 14,50,000
Less: Provision for doubtful debts 2,60,000		11,90,000
Other Current Assets		2,00,000
Total		28,90,000

Working Note 1:

CAPITAL REDUCTION ACCOUNT

Particulars	Rs.	Particulars	Rs.
To General Reserve	16,40,000	By Interest Accrued and Due on:
To Provision for Doubtful Debts	2,60,000	Unsecured Loans	1,50,000
To Capital Reserve (Balancing figure)	5,000	Debentures	55,000
		By 11% Preference Share Capital A/c	2,50,000
		By Current Liabilities	50,000
		By Equity Share Capital A/c	10,00,000
	————————–	By Fixed Assets	4,00,000
	19,05,000		19,05,000

ILLUSTRATION :

Balance Sheet of JAY Co. Ltd.
As on 31st March, 2013 is given below:

Particulars	Note No.	Amount(Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
2,000 6% Cumulative Preference Shares of `100 each fully paid-up		2,00,000
75,000 equity shares of `10 each fully paid-up		7,50,000
(b) Reserves and Surplus
General Reserve Nil
Less: Debit balance of P&L a/c 3,50,000		(3,50,000)
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
6% Debentures (Secured by Freehold Property)		3,75,000
Directors loan		2,00,000
(4) Current Liabilities
Trade Payables		12,500
Interest Accrued and due on debentures		22,500
Total		12,10,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
Freehold Property		3,50,000
Plant 50,000
(b) Non Current Investments (At Cost)		60,000
(2) Current Assets
Stock and Stores		2,00,000
Trade Receivables		4,00,000
Deferred Advertising Expenditure		1,50,000
Total		12,10,000

The Court approved a scheme of reorganization to take effect on 1.4.2013 whereby:
– Preference shares to be written down to `75 each and equity shares to Rs.2 each.

– Preference Dividends-in-arrears for 4 years, 75% to be waived and equity shares of Rs.2 each to be allotted for the remaining quarter.

– Accrued Debenture Interest to be paid in cash.

– Debenture holders agreed to take over Freehold Property (Book Value Rs.1,50,000) at a valuation of Rs.1,50,000 in part repayment of their holdings and to provide additional cash of Rs.1,30,000 secured by a floating charge on the company’s assets at an interest rate of 10% p.a.

– Deferred Advertising to be written off.

– Stock to be written off fully.

– Rs.2,33,000 to be provided as Bad Debts.
– Investments sold out for Rs.1,50,000.

– In settlement of their loans, Directors are to accept equity shares of Rs.2 each for 90% of their loans, waving 10% of the balance of their loan amount.

– Capital commitments contracts totaling `3,00,000 are to be cancelled by payment of penalty @ 5% of Contract Value.
– Taxation and Cost of Scheme are to be ignored.

Show Journal entries, reflecting the effect of the above transactions (including cash transactions) and draw up the Balance Sheet after affecting the Scheme.

Solution :

JOURNAL OF A Co. LTD

Particulars	Debit Amount(Rs.)	Credit Amount (Rs.)
6% Preference Share Capital A/c Dr.	50,000
To Capital Reduction A/c (Being Preference Shares of `100 each reduced to `75 as per reconstruction scheme)		50,000
Equity Share Capital A/c Dr.	6,00,000
To Capital Reduction A/c		6,00,000
(Being equity shares of `10 reduced to ` 2 as per reconstruction scheme)
Capital Reduction A/c Dr.	12,000
To Equity Share Capital A/c		12,000
(Being arrears of Preference Share Dividend `48,000 are to be satisfied by issue of ` 12,000 equity shares to the extent of 25% of `48,00)
Accrued Debentures Interest A/c Dr.	22,500
To Bank		22,500
(Being Accrued debentures interest paid)

6% Debentures A/c Dr.	1,50,000
To Freehold Property A/c 1,50,000		1,50,000
(Being claim of debenture holders settled in part in respect of principal amount by transfer of freehold property as per reconstruction scheme)
Bank A/c Dr.	1,30,000
To 10% Debentures A/c		1,30,000
(10% Debentures issued for Cash)
Capital Reduction A/c Dr.	9,33,000
To Profit & Loss A/c		3,50,000
To Deferred Advertising Expenses A/c		1,50,000
To Stock A/c		2,00,000
To Bad Debts A/c		2,33,000
(Being various assets written off as per Reconstruction scheme)
Freedom Property A/c Dr.	2,00,000
To Capital Reduction A/c		2,00,000
(Being appreciation in the value of property i.e.,` 4,00,000 – (`3,50,000 – `1,50,000)

Bank A/c Dr.	1,50,000
To Trade Investments		60,000
To Capital Reduction A/c		90,000
(Trade investment sold and profit credited to Capital Reduction A/c)

Directors’ Loan A/c Dr.	2,00,000
To Equity Share Capital A/c		1,80,000
To Capital Reduction A/c		20,000
(Being Directors’ Loan discharged by issue of Share Capital and the balance transferred to Capital Reduction A/c)

Capital Reduction A/c Dr.	15,000
To Bank		15,000
(Being payment of 5% penalty for cancellation of capital commitments of `3,00,000)

The Balance Sheet of A & Co. (After Reconstruction)
As on 1st April, 2013

Particulars	Note No.	Amount (Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
1,71,000 Equity Shares of `2 each		3,42,000
(Of the above 90,000 shares have been issued for consideration
other than cash)
2,000 6% Cumulative preference shares of `75 each fully paid		1,50,000
(2) Share Application Money pending allotment 0
(3) Non – Current Liabilities
6% Debentures		2,25,000
10% Debentures		1,30,000
(4) Current Liabilities
Trade Payables		12,500
Total		8,59,500
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
Freehold Property (Including `2,00,000 appreciation in value due to reconstruction)		4,00,000
Plant		50,000
(2) Current Assets
Trade Receivables (`4,00,000– `2,33,000)		1,67,000
Cash at Bank (`1,30,000 + `1,50,000 – `22,500 – `15,000)		2,42,500
Total		8,59,500

ILLUSTRATION

Balance Sheet of KING Co. Ltd.
As on 31st March, 2013 is given below:

Particulars	Note No.	Amount (Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
2,00,000 Equity Shares of `10 each, `5 paid up		10,00,000
6,000 8% Preference shares of `100 each		6,00,000
(b) Reserves and Surplus
General Reserve Nil
Less: Debit balance of P&L a/c 4,08,000		(4,08,000)
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
9% Debentures		6,00,000
(4) Current Liabilities
Trade Payables		69,000
Interest Accrued and due on debentures		1,08,000
Bank overdraft		1,50,000
Interest accrued on bank overdraft		15,000
Total		21,34,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
(i) Tangible Assets		11,40,000
(ii) Intangible Assets
Patents and copyrights		80,000
(b) Non Current Investments (At Cost)		65,000
(2) Current Assets
Stock and Stores		4,00,000
Trade Receivables		4,39,000
Bank		10,000
Total		21,34,000

– Preference dividend is in arrear for one year. Preference shareholders to give up their claims, inclusive of dividends, to the extent of 30% and desire to be paid-off.

– Debenture-holders agree to give up their claims to interest in consideration of their interest being enhanced to 12%.
– Bank agrees to give up 50% of its interest outstanding in consideration of its being paid off at once.
– Creditors would like to grant a discount of 5% if they are paid immediately.
– Balance of Profit & Loss Account, Patents and Copyrights and Debtors of `30,000 to be written off.
– Fixed Assets to be written down by `34,000.
– Investments are to reflect their market value.
– To the extent not specifically stated, equity shareholders suffer on reduction of their rights. Cost of reconstruction is `3,350.

Draft journal entries in the books of the company assuming that the scheme has been put through fully with the equity shareholders bringing in necessary cash to pay off the parties and to leave a working capital of `30,000 and prepare the Balance Sheet after reconstruction.

Solution

In the Books of KING Co. Ltd.
JOURNAL ENTRIES

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)
8% Preference Share Capital A/c Dr.	6,00,000
To Preference Shareholders A/c		4,20,000
To Capital Reduction A/c		1,80,000
(30% of claim given up by preference shareholders as per reconstruction scheme dated…………….)
Capital Reduction A/c Dr.	33,600
To Preference Shareholders A/c		33,600
(70% of arrear preference dividend payable to preference Shareholders as per reconstruction scheme)
Preference Shareholders A/c Dr.	4,53,600
To Bank A/c		4,53,600
(Amount due to preference shareholders discharged)
9% Debentures A/c Dr.	6,00,000
Interest Accrued on Debentures A/c Dr.	1,08,000
To 12% Debentures A/c		6,00,000
To Capital Reduction A/c		1,08,000
(9% debentures converted into equivalent number of 12% debentures and the accrued debenture interest sacrificed as per reconstruction scheme)

Bank Overdraft A/c Dr.	1,50,000
Interest Accrued on Bank Overdraft A/c Dr.	15,000
To Bank A/c		1,57,500
To Capital Reduction A/c		7,500
(Bank overdraft paid-off including 50% of accrued interest as per reconstruction scheme, the interest sacrificed credited to Capital Reduction A/c)
Creditors A/c Dr.	69,000
To Bank A/c		65,550
To Capital Reduction A/c		3,450
(Creditors claim discharged to the extent of 95% as per reconstruction scheme, the balance of the claim sacrificed

Capital Reduction A/c Dr.	5,62,000
To Profit & Loss A/c		4,08,000
To Patents & Copyrights A/c		80,000
To Debtors A/c		30,000
To Investments A/c		10,000
To Fixed Assets A/c		34,000
(Writing off debit balance of profit and loss account, patents & copy rights and writing down the value of debtors, investments and fixed assets as per reconstruction scheme)

Equity Share capital A/c (W. Note 1) Dr.	3,00,000
To Capital Reduction A/c		3,00,000
(Equity shareholders rights reduced to a share of `3.5 vide Board Resolution No. …. Dated…, the amount of sacrifice credited to Capital Reduction Account)

Bank A/c (W. Note 2) Dr.	7,00,000
To Equity Share Capital A/c		7,00,000
(Amount received on 2,00,000 equity shares @ `3.50 per share as per reconstruction scheme)
Capital Reduction A/c Dr.	3,350
To Bank A/c		3,350
(Reconstruction expenses paid)

Balance Sheet of KING Co. Ltd. (and reduced)
As on 31st March, 2013

Particulars	Note No.	Amount (Rs.)
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
Issued and Paid-up : 2,00,000 Equity Shares of `10 each, `7 paid		14,00,000
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
12% Debentures		6,00,000
(4) Current Liabilities		0
Total		20,00,000
II. ASSETS
(1) Non-current Assets
Fixed Assets (`11,40,000 – `34,000 written off under Reconstruction Scheme)		11,06,000

Non Current Investments		55,000
(2) Current Assets
Stock and Stores		4,00,000
Trade Receivables		4,09,000
Bank		30,000
Total		20,00,000

Working Notes:

1. Statement Showing Liabilities and Equity Sacrificed and their uses as per Scheme

Liabilities and Equity Sacrificed	Rs.	Uses	Rs.
Preference Shareholders:		Writing off :
30% of `6,00,000	1,80,000	Reconstruction Expenses 3,350
Debenture holders:		Profit & Loss Account Balance	4,08,000
Interest on Debentures	1,08,000	Patients & Copyrights	80,000
Bank Overdraft:		Arrear Preference Dividend	33,600
Interest on Bank Overdraft (50%)	7,500	(70% of `48,000)
Creditors :		Writing down :
5% of `69,000 3,450		Debtors	30,000
Equity Shareholders :		Investments	10,000
Sacrifice @ `1.50 per share		Fixed Assets	34,000
(Balancing figure)	3,00,000		——————
	5,98,950		5,98,950

2. Cash to be brought in by Equity Shareholders: `
Payment to:
Preference shareholders (including arrear preference dividend) 70% of `6,48,000 4,53,000
Bank Overdraft (including interest on bank overdraft) (`1,50,000 + `7,500) 1,57,500
Creditors (95% of `69,000) 65,550
Others:
Reconstruction expenses 3,350
Additional cash required for working capital of ` 30,000
to be maintained (`30,000 – `10,000 cash in hand) 20,000
7,00,000

No. of equity shares = 2,00,000

Therefore, contribution per equity share =Rs. 7,00,000/2,00,000 =Rs.3.50

ILLUSTRATION 5
The following is the Balance Sheet as at 31st March, 2013 of JINX Prospects Ltd.

Particulars	Note No.	Amount `
I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
7,500 Equity Shares of `100 each fully paid up		7,50,000
3,000 8% Preference shares of `100 each		3,00,000
(b) Reserves and Surplus
Securities Premium		12,000
General Reserve		80,000
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities		0
(4) Current Liabilities
Trade Payables		3,75,000
Total		15,17,000
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets
(i) Tangible Assets		9,80,000
(ii) Intangible Assets
Goodwill		1,00,000
(b) Non Current Investments (At Cost)		20,000
(2) Current Assets
Stock and Stores		2,00,000
Trade Receivables		1,54,500
Bank		62,500
Total		15,17,000

Contingent liability:

Preference Dividends in arrears Rs.66,000.

The Board of Directors of the company decided upon the following scheme of reconstruction:

– The preference shares are to be converted into 13% unsecured debentures of `100 each in regard to 80% of the dues (including arrears of dividend) and for the balance equity shares of `50 paid-up would be issued. The authorized capital of the company permitted the issue of additional shares.

– Equity shares would be reduced to shares of `50 each paid-up.

– All equity holders agree to pay the balance in cash.

– Goodwill has lost its value and is to be written off fully. Investments are to reflect their market value of
Rs.30,000. Obsolete items in stock of `50,000 are to be written off. Bad debts to the extent of 5% of the total debtors would be provided for. Fixed assets to be written down by Rs.1,50,000.

– The scheme was duly approved and put into effect.

The Company carried on trading for six months and after writing off depreciation at 20% p.a. on the revised value of fixed assets, made a net profit of `80,000. The half-yearly working resulted in an increase of Sundry Debtors by Rs.60,000, Stock by Rs.80,000 and cash byRs.40,000.

Show the journal entries necessary in the Company’s books to give effect to the scheme and draw the Balance Sheet as at 30th September, 2013.

Solution

In the Books of JINX Prospects Ltd.
JOURNAL ENTRIES

Particulars	Debit Amount (Rs.)	Credit Amount (Rs.)

Cumulative Preference Share Capital A/c Dr.	3,00,000
Capital Reduction A/c Dr.	66,000
To Cumulative Preference Shareholders A/c		366,000
(Being the cumulative preference shares & arrear Dividend transferred to cumulative preference shareholders account in accordance with the resolution of The Board dated………………..)

Cumulative Preference Shareholders A/c Dr.	3,66,000
To 13% Unsecured Debentures A/c		2,92,800
To Equity Share Capital A/c		73,200

(Being the issue of 13% unsecured debentures and 1,464 equity shares of `100 each issued as `50 paid-up as per the Board resolution dated…..……)

Equity Share Capital A/c Dr.	3,75,000
To Capital Reduction A/c		3,75,000
(Being the entry for reducing every share of `100 Each as `50 paid-up 7,500 equity shares @ `50 as Per the Board resolution dated ……..…..)

Cash A/c Dr.	4,48,200
To Equity Share Capital A/c		4,48,200
(Being the receipt of cash of `50 each for 8964 being the call made as per Board’s resolution dated……..)

Investments A/c Dr.	10,000
Capital Reduction (Balancing Figure) Dr.	2,97,725
To Goodwill A/c		1,00,000
To Stock A/c		50,000
To Fixed Assets A/c		1,50,000
To Provision for Doubtful Debts A/c
(Being the change in value of assets as per the resolution of the Board dated………..)

Capital Reduction A/c Dr.	11,275
To Capital Reserve A/c		11275
(Being the transfer of Capital Reduction A/c balance to Capital Reserve)

JINX Prospectus Ltd.
Balance Sheet at 30th September, 2013

Particulars

Note No.

Amount

I. EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital
8,964 Equity shares of `100 each fully paid up		8,96,400
(b) Reserves and Surplus
Securities Premium		12,000
General Reserve		80,000
Capital Reserve		11,275
P&L A/c		80,000
(2) Share Application Money pending allotment		0
(3) Non – Current Liabilities
13% Unsecured Debentures		2,92,800
(4) Current Liabilities
Trade Payables (W. Note 3)		3,92,000
Total		17,64,475
II. ASSETS
(1) Non-current Assets
(a) Fixed Assets (after reduction of `1,50,000 due to
reconstruction) 8,30,000
Less: Depreciation for ½ Year 83,000		7,47,000
(b) Non Current Investments (At Cost)		30,000
(2) Current Assets
Stock and Stores		2,30,000
Trade Receivables 2,14,500
Less: Provision for Doubtful Debts 7,725		2,06,775
Bank (W. Note 2)		5,50,700
Total		17,64,475

Working Notes:
(1) No. of equity shares issued to cumulative preference shareholders 1,464

No. of shares held by Equity shareholders 7,500
Total: 8,964

(2) Bank Balance Rs.

Opening Balance on 31.3.2013 62,500
Add calls on shares @Rs.50 per share
(8,964 `50 per share) 4,48,200
Balance on implementation of the scheme 5,10,700
Add: Change in cash balance (as given) ( + ) 40,000
5,50,700

(3) Creditors Balance = Balancing figure in the Balance Sheet
Alternative approach : Profit & Loss upto 30.9.2013 80,000
Add : Depreciation (non-cash item) 83,000
Cash from Operations (A) 1,63,000
Change in Current Assets:
Debtors ( + ) 60,000
Stock ( + ) 80,000
Cash Balance ( + ) 40,000
Cash Outflow (B) 1,80,000
Increase in creditors :
Excess of (B) over (A) 17,000
Add: Opening Balance of Creditors 3,75,000
3,92,000

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