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19,000 By Profit and Loss A/c 5,000 a 25 To Shares in Z Ltd. (14,000 from B Ltd. 5,000 from Z Ltd.) 37,000 37,000 VII. Internal Reconstruction Illustration - 29: The Balance Sheet of Z Ltd. before reconstruction is: Liabilities RS Assets Rs. 4,00,000 6,00,000 12,000 7% Preference shares of Rs.50 each 7,500 Equity shares of Rs. 100 each Building at cost Less: Depreciation Plant at cost Less: Depreciation Trade Marks and Goodwill at Cost 2,68,000 7,50,000 3,18,000 Rs. Liabilities (Note: Preference dividend is in arrear for five years) Loan Sundry creditors Other liabilities Total Assets Stock Debtors Preliminary expenses Profit and Loss A/C Rs. 4,00,000 3,28,000 11,000 4,40,000 5,73,000 2,07,000 35,000 21,65,000 Total 21,65,000 The Company is now earning profits short of working capital and a scheme of reconstruction has been approved by both classes of shareholders. A summary of the scheme is as follows: a. c. The Equity Shareholders have agreed that their Rs. 100 shares should be reduced to Rs.5 by cancellation of Rs. 95 per share. They have also agreed to subscribe in each for the six new Equity Shares of Rs. 5 each for each Equity Share held. b. The Preference Shareholders have agreed to cancel the arrears of dividends and to accept for each Rs.50 share, 4 new 5 per cent Preference Shares of Rs.10 each, plus 3 new Equity Shares of Rs. 5 each, all credited as fully paid. Lenders to the Company of Rs. 1,50,000 have agreed to convert their loan into share and for this purpose they will be allotted 12,000 new preference shares of Rs.10 each and 6,000 new equity share of Rs. 5 each. d. The Directors have agreed to subscribe in cash for 40,000, new Equity Shares of Rs. 5 each in addition to any shares to be subscribed by them under (a) above. Of the cash received by the issue of new shares, Rs.2,00,000 is to be used to reduce the loan due by the Company f. The equity Share capital cancelled is to be applied: i. to write off the preliminary expenses; ii. to write off the debit balance in the Profit and Loss A/c; and iii. to write off Rs.35,000 from the value of Plant. Any balance remaining is to be used to write down the value of Trade Marks and Goodwill. Show by journal entries how the financial books are affected by the scheme and prepare the balance sheet of company after reconstruction. The nominal capital as reduced is to be increased to the old figures of Rs. 6,50,000 for Preference capital and Rs.7,50,000 for Equity capital. e

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