Changes In Company Capital Structure & Restructuring with Sejagat Bhd

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Q4 Syarikat Sejagat

Syarikat Sejagat Ltd has been operating for 10 years of financial difficulties and had suffered business losses a few years in a row. This caused the company cannot declare or pay any dividends for four consecutive years.

In the 2005 general meeting of shareholder have agreed to implement the capital restructuring plan. The following is the balance sheet of Syarikat Sejagat ltd as at 31.12.2005

Syarikat Sejagat Ltd Financial Position As At 31 December 2005
				RM
NON- CURRENT ASSET
Land & Building				175,000
Plant &Machiney				114,000
Vehicle				95,400
Furniture				46,000
R & D Expenses				24,000
Paten				38,000
CURRENT ASSETS:
Bank				(32,000)
Debtors				75,000
Inventories				136,600
				672,000
AUTHORIZED CAPITAL:
600000 Ordinary Shared@ RM1.20				720,000
200000 4% Preference Shared @ RM1.00				200,000
				920,000
ISSUED CAPITAL:
450 000 Ordinary Shared  @ RM 1.20				540,000
100 000 4% Preference Shared @ RM 1.00				100,000
Retained Profit				(185,000)
Shared Premium				42,000
Director Loan				60,000
Creditor				115,000
				672,000

 

The company  passed  a special resolution to reduce its capital and approval of the court was duly obtained. The following is the scheme of reduction of capital:

           i            Preference shared to be reduced at RM0. 25 per unit and ordinary shared are to be reduced by RM 0.70 per unit. Both classes of shared are then combined and converted into ordinary shared of RM1.00 each.

     ii            Share premium account and profit and loss account shall be fully eliminated.

        iii            Bank overdrafts will be paid by issued of 5% debentures.

       iv            Creditor amounting to RM80 000 agreed to settle the debts by issuing ordinary share @RM1.00 for every 4 unit ordinary shared held for every RM5.00 due. The balance is paid in cash.

         v            Directors agreed to eliminate the debt on the company by received 4 unit of ordinary shared @RM 1.00 for every RM5.00 owed.

       vi            Intangible assets are eliminated in full

      vii            Assets were revalue are eliminated inn full

                       Land & building              RM 205,000

                       Plant & machinery             RM 75,000

                       Vehicle                               RM 50,000

                       Furniture                             RM 26,000

viii            Stock revalue to the value of RM112,000 and bad debts increased to 10%.

       ix            Preference shareholder, agree to receive two units of ordinary share of RM1.00 each for every RM5.00 of the outstanding dividends.

     x  To improve cash flow, all the owners agree to subscribe ordinary shares of RM1.00 each by the ratio of 2 units for every 5 units of shares held after the scheme above and fully paid.

         xi            The cost to fiancé this scheme amounting to RM 12,000

       xii            The company has received approval to increase authorized capital of  800 000 ordinary shares unit  @RM 1.00

Required:

a)      Journal entry for the transaction  above                                        (10 marks)

 

This is suggestion answer from some of your friends... you may get a view...
 

Ordinary shares (450,000 x 70 cent)	315,000
Preference shares(100,000 x 25cent)	25,000
Capital reduction		340,000
Ordinary shares (450,000 x 50cent)	225,000
Preference shares(100,000x 75 cent)	75,000
Ordinary shares		300,000
Share Premium	42,000
Capital reduction		42,000
Capital reduction	185,000
Profit & Loss		185,000
Bank overdraft	32,000
Debentures		32,000
Creditors	80,000
Ordinary shares		64,000
Bank		16,000
Directors Loan	60,000
Ordinary shares		48,000
Capital reduction		12,000
Capital reduction	62,000
RND Expenses		24,000
Paten		38,000
Land & Building	30,000
Capital reduction		30,000
Capital reduction	136,500
Plant & Machinery		39,000
Vehicle		45,400
Furniture		20,000
Stocks		24,600
Debtors		7,500
Capital reduction( 4%x100k)/RM5x2 os x 4yrs	6,400
Ordinary shares		6,400
Bank	167,360
Ordinary shares (328.4k/5)*2		167,360
Capital reduction	12,000
Bank		12,000

b)      Capital reduction account                                                               (5 marks)

 

  ... so, may be you may develop the CRA here from the journal discussed above...

               key answer:                       Dr       CRR     RM22,100

 

c)       SOFP on 31^st December 2008 after the capital reduction plans had completed                                                                                                                                    (10 marks)

... will you proceed this?

Key for:
Ordinary share = 300k+64k+48k+6.4k+167.36k
Total Asset & Liability =  674.86k