Changes in Company Capital Structure & Restructuring with Zinirah

Zinirah Sdn. Bhd. who encountered a problem in their business decides to implement the capital restructuring plan. Given below is the balance sheet of Zinirah Sdn. Bhd. as at 31 December 2005.

	Debit (RM)	Credit (RM)
Authorized, Issued and fully paid up capital:
10% Preference Share @ RM 1.00		150,000
Ordinary Share @ RM 1.00		1,500,000
Share premium		300,000
Profit and Loss Account	1,200,000
10% Debenture		225,000
Goodwill	180,000
Establishment expenses	7,500
Research & Development	45,000
Plant & Machinery (Net book value)	420,000
Fixtures & Fittings (Net book value)	210,000
Stock	180,000
Debtor	112,500
Cash	1,500
Bank overdraft		31,500
Creditor		150,000
	2,356,500	2,356,500

Note: Preference Share dividends are outstanding for 3 years.

A capital reduction scheme was approved by the court as follows:

1)      Preference share to be reduced by RM 0.30 per share and ordinary share by RM 0.80 per share. The Preference shareholders agreed to accept one ordinary share for every RM 1.00 accrued dividend for the purpose of full settlement of the dividend.

2)      The goodwill, establishment expenses, research & development, profit & loss account, RM 3,000 of debtors and RM 30,000 of stock are to be written off.

3)      The share premium is to be utilized for this scheme.

4)      Debenture holders agreed to accept RM 150,000 12% debenture and 375,000 units of ordinary share to replace 225,000 10% debenture.

5)      The reconstructing cost is RM 3,000.

6)      The balance in the capital reduction account will be used as the revaluation amount for plant & machinery.

You are required to prepare:

a)      Journal entries to record the above mentioned information.

b)      Capital Reduction Account.

c)       Statement of Financial Position after the completion of the capital reduction scheme as at 31 December 2005.