Question

252 Chapter se statement of the Required Discuss the guitability of the scheme on the various stakeholders Show the necessary ournal entries to effect the reconstruction scheme and prepare the st position of the company immediately after the internal reconstruction 7.3 Yam Bhd Trial Balance as at 31 December 26 Debit RM Credin 700,000 300.000 602,500 50,000 55,000 75.000 700,000 ordinary shares 300,000 8% preference shares Accumulated losses Intangibles Trade receivables Trade payables Land and building Plant and machinery Inventories Bills payable Bank 200.000 180,000 63,000 20,000 55,500 1,150,500 1.150,500 It resolved to carry out the following scheme of capital reduction after all the statutory requirements were fulfilled • To reduce the ordinary shares to 10 sen per share and then to consolidate the reduced ordinary shares into RM1 ordinary shares. • To get the preference shareholders to accept 250,000 ordinary shares of RM1 each in exchange for the 8 percent preference shares • To write off the accumulated losses. The following assets were valued as follows: Land and building Plant and machinery Intang bles Inventories Trade receivables RM 217.500 130,000 20,000 50.000 53,000 Required: i Discuss the rationale for undertaking a reconstruction rather than winding up. i Show the journal entries necessary to the above transactions in the company's books. Prepare the statement of financial position of the company after the completion of the capital reduction scheme.

Answer 1

7.3)

Req (i)
The reconstruction is opted rather than winding up to escape the desolution of the
company and reduce the capital and revalue assets to operate at lower level. The
company has accumulated losses which are written off and manage the new
internal reconstructed structure to improve profitability.
Req (ii)
Journal Entries:
Date	Accounts Title	Debit $	Credit $
Dec 31, 20x6	Ordinary Shares	700000
	Reconstruction		630000
	Ordinary Shares		70000
	(ordinary shares reduced to 1/10th of the par value)
Dec 31, 20x6	8% preference Shares	300000
	Reconstruction		50000
	8% preference Shares		250000
	(New Preference shares allotted to old prefe. Shareholders)
Dec 31, 20x6	Reconstruction	602500
	Accumulated losses		602500
	(accumulated losses written off through reconstruction)
Dec 31, 20x6	Land and Building	217500
	Plant and Machinery	130000
	Intangibles	20000
	Inventories	50000
	Trade receivables	53000
	Reconstruction (bal. figure)	77500
	Land and Building		200000
	Plant and Machinery		180000
	Intangibles		50000
	Inventories		63000
	Trade receivables		55000
	(assets being revalued for reconstruction)
Req (iii) : Statement of financial position as on Dec 31, 20x6:
	Balance Sheet as on Dec 31, 20x6:
	Assets	Amount $
	Trade receivables	53000
	Inventory	50000
	Current Assets	103000
	Intangibles	20000
	PPE:
	land and building	217500
	Plant and machinery	130000
	Total Assets	470500
	Liabilities and SH Eq.:	Amount $
	Bank Overdraft	55500
	Trade payables	75000
	Bills payable	20000
	Current Liabilities	150500
	SH. Equity:
	70000 ordinary shares	70000
	250000 8% preference shares	250000
	Total Liabilities & SH Equity	470500