Kiraan EMAS kehidupan

TOPIC 3: CHANGES IN CAPITAL STRUCTURE AND INTERNAL RECONSTRUCTION

READ A NOTES CLICK HERE

Let's us try this example to test your understanding from your reading...

 
Below is the balance sheet of Yeye LTD as at 31 December 2009

                                                                      RM                          RM

Assets

Land & Building                                                               280,000                    

(-) Acc. Depreciation                                                          80,000                        200,000

Plant & Machinery                                                           80,000

(-) Acc. Depreciation                                                        10,000                           70,000   

Goodwill                                                                                                                    30,000

Preliminary expenses                                                                                                 3,000

Inventories                                                                                                                 70,000

Debtors                                                                                                                       45,000

                                                                                                                                   418,000

Equity and Liabilities

500,000 ordinary shares @ RM1.00                                                                     500,000

200,000 preference shares @ RM1.00                                                                 200,000

Premium shares                                                                                                        100,000

Accumulated losses                                                                                               (450,000)

Creditors                                                                                                                     50,000

Bank overdraft                                                                                                          18,000

                                                                                                                                   418,000

Company approved a special resolution to do the restructuring of the company’s and court permission was obtained. Restructuring scheme consists of the following:

  1. The ordinary shares to be reduced to 30 cent per share and preference shares will be reduced to 75 cent per share.
  2. Share premium account to be utilized for the scheme
  3. Assets were revalued as follows :

Land & Building           RM220,000

Plant & Machinery      RM60,000

Inventories                   RM50,000

Debtors                         RM38,000

 

4.       All intangible assets and accumulated losses are to be written off.

5.       The Board of Director has agreed to subscribed for 200,000 ordinary shares of 30 cent per share paid in cash and partly used to pay the bank overdraft.

You are required to prepare:
a)      Journal entries to record the capital reduction
b)      The capital reduction account
c)       The Statement of Financial Position of Yeye LTD immediately after the capital reduction.


...how to start this...?

...don't worry...! You may start with the journal entry as per note given...


Suggestion: 
Dr  OS         350,000 (0.70 x 500,000)
       PS           50,000 (0.25 x 200,000)
       Cr   CRA                      400,000

Dr  Share Premium          100,000
       Cr   CRA                       100,000

Dr     Land & Building        20,000
        Cr    CRA                           20,000

Dr   CRA                     37,000
        Cr     Plant & Machinery                  10,000
                 Inventories                               20,000
                 Debtors                                      7,000

Dr   CRA            33,000
        Cr     Goodwill                    30,000
                 Preliminary Expenses                    3,000

Dr    CRA          450,000
         Cr   Accumulated Losses              450,000

Dr        Bank        60,000
         Cr     OS           60,000

Dr        Bank Overdraft                18,000
          Cr          Bank                         18,000


                                                                           CRA
P & M 10,000 OS 350,000
Inventory 20,000 PS 50,000
Debtors 7,000 Share Premium 100,000
Goodwill 30,000 L & B 20,000
Preliminary Expenses 3,000  
Accumulated Losses 450,000  
520,000   520,000

 
YeYe Bhd
Statement of Financial Position as at 31.12.2009
NCA:
L & B
220,000
 
P & M
60,000
 
 
 
 
 
 
 
CA:
 
 
Inventory
50,000
 
Debtors
38,000
 
Bank
42,000
 
 
 
 
 
410,000
 
 
 
 
Equity:
 
 
700,000 OS@RM0.30
210,000
 
200,000 PS @ RM0.75
150,000
 
 
 
 
CL:
 
 
Creditors
50,000
 
 
410,000
 
 
**Bank = RM60,000-RM18,000




Question 1:
Given below is Statement of Financial Position of Pink Star Ltd as at 31 December 2008.

Non-Current Assets :
Properties
                        300,000
Plant and machinery
                        105,000
Goodwill
                           45,000
Research and Development
                             4,500
                        454,500
Current Assets :
Stocks
                        105,000
Debtors
                           67,500
                        172,500
                        627,000
Issued and paid up capital :
750,000 ordinary shares of RM 1/ -each
                        750,000
300,000 7% preference shares of RM 1/ -each
                        300,000
Share premium
                        150,000
Profit and loss account
                      (675,000)
                        525,000
Current Liabilities :
Creditors
                           75,000
Bank overdraft
                           27,000
                        102,000
                        627,000

The company passed a special resolution to reduce its capital and the approval of court was duly
obtained. The following is the scheme of reduction of capital:
1.       The ordinary shares and preference shares are to be reduced to 25 cents and 60 cents respectively, and the share premium is to be utilized for the scheme.

2.       The following values will be adopted for the assets:
RM
Properties
330,000
Plant and machinery
90,000
Stocks
75,000
Debtors
57,000

3.       All intangible assets and the profit and loss balance will be written off.
4.       The directors agreed to take up 350,000 ordinary shares of 25 cents each, payable in
cash immediately and part of the proceeds will be used to pay off the bank overdraft.


Your are required to prepare:

a.       Journal entries to record the capital reduction.

b.      The capital reduction account ; and

c.       The Statement of Financial Position of Pink Star Ltd immediately after the capital reduction.

 

Following is the Statement of Financial Position of FAM Corporation Ltd as at 31 December 2009.


                                                                                                                       RM

Authorized Share Capital      

300,000 8% Preferences Share @ RM1.00                                              300,000

1,100,000 Ordinary Share @ RM 1.00                                                  1,100,000

                                                                                                                      1,400,000         

Issued Share Capital                                                   

300,000 8% Preferences Share @ RM1.00                                              300,000

600,000 Ordinary Share @ RM1.00                                                         600,000

Capital Reserves                                                                                            20,000

Profit and loss                                                                                               (400,000)

Creditor                                                                                                            150,000

                                                                                                                                                         670,000

Assets

Land and building                                                                              200,000  

Plant and Machine                                                                             200,000

Stock                                                                                                       65,000

Debtor                                                                                                   125,000

Bank                                                                                                          15,000

Goodwill                                                                                                   65,000

                                                                                                                                                     670,000          

A capital reduction scheme agreed to by all parties and sanctioned by the court is as follows:
  1. The ordinary share to be reduced to RM0.25 per share and the preferences shares
  2. reduced to RM0.75 per share.
  3. All the shares that have been reducing the value are to be combined to ordinary     
  4. shares at par value of RM1.00 per share.
  5. The Intangible Assets and profit and loss account are to be written off.
  6. The capital reserves to be utilized for the scheme.
  7. Assets were revalue as follows:
Land and building     RM 220,000
Plant and machine     RM 230,000 
Debtor                       RM    25,000
Stock                         RM    25,000
6.       The creditor agreed to receive 20,000 units of ordinary shares at par value
of RM1.00 for being paid their debts amounted RM 30,000.
7.       The right issues have been accomplished at portion 1:1 on premium price
of 10% and fully subscribed by all new ordinary shareholders.
You are required to prepare:
a)      Record the transactions in journal entries
b)      Capital Reduction Account
c)       Statement of Financial Position after the scheme completely imposed.



Given below is the statement of Financial Position of  Mawar Ltd as at
31 December 2008.
Mawar Ltd
Statement of Financial Position as at 31 December 2008
Non Current Assets                                                                          RM                             RM
Land & Building                                                                                                           130,000
Goodwill                                                                                                                          15,000
Vehicle                                                                                         85,000
(-) Accumulated Depreciation                                               (48,000)                       37,000

Current Assets
Inventories                                                                                                                      42,000
Debtors                                                                                                                            
31,000
                                                                                                                                          73,000
(-) Current Liabilities
Bank Overdraft                                                                    15,000
Creditors                                                                               28,000
Working Capital                                                                                                                               
                                                                                                  30,000
                                                                                                                                                                212,000



Equity
Ordinary Share @ RM 1.00                                                                                                           200,000
8% Preference Share @ RM 1.00                                                                                                 50,000
Accumulated Losses                                                                                                                      
(38,000)
                                                                                                                                                                212,000

 

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

a)      The Ordinary shares to be reduced at 50 cent per share and preference shares will be reduced to 80 cent per share.

b)      Land & Building to be reduced at RM 20,000.


c)       RM 12,000 of inventories will be disposed.


d)      Accumulated depreciation for vehicle is increased to RM 8,000.
e)      Goodwill and Accumulated losses will be written off.
f)       Dividends for preference shares are outstanding for four years. Preference shareholders are willing to receive 16,000 units of ordinary shares of RM 0.50 each as a complete solution for the dividends in arrears.
REQUIRED :

  1. Journal entry for the transaction above.
  2. Capital reduction account.
  3. Statement of Financial Position on 31st December 2008 after the capital reduction plans had completed.


What is dividend arrears?  Click here...

After you understand what the arrears is... let us try with this question...

Atan Bhd was face difficulties in business and made a decision to restructure the company's financial.  On 31 December 2009 the trial balance was release as follow:

RMRM
"000"000
250,000 Preference Share 10%@RM1.00 per share250,000
200,000 Ordinary Share @ RM1.00 per share200,000
Share Premium Account55,000
Accumulated Losses137,900
Research and development Expenses9,250
Goodwill18,100
Creditors38,000
Debtors42,100
Bank Overdraft45,000
Freehold Lands148,900
Machinery280,000
Accumulated depreciation of Machinery58,000
Stock9,750
       646,000 646,000


The courts approve to start a reduction capital plan as follow:

1.  Preference share to be reduced to RM0.85 per share.
2.  Ordinary share to be reduced at RM0.75 per share.
3.  The preference shareholders to receive one ordinary share of RM0.25 each for every RM1.00 preference dividend in arrears.
4.  The share premium account has to be right off.
5.  Machinery have to revalue for RM175,000.
6.  Accumulated losses and all intangible assets have to be right off.
7.  500,000 ordinary share was issued at par value to gain company cash and fully paid.

While the resolution of reducing capital approved, another resolution to state the capital RM450,000 include 250,000 preference share 10% value RM0.85 per share and the balance will be in ordinary share value RM0.25 per share was approved.

Required:
1.  Journal entry for the transaction above
2.  Capital reduction account (CRA: CRR 24,000)
3.  Statement of Financial Position on 31 December 2009 after the capital reduction plans had completed.(455,750)


**Key answer no. 3:

25,000 x 0.25

Dr  Capital Reduction Account       6,250
      Cr   Ordinary Share Capital (Accrual Dividend)            6,250



How do you feel when trying to answer Atan Holding...?  You should feel more confident and want to try answer more question...right?... so why not you try this... and try to look out where is your loop to improve on...
 
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 in full:
                            Land& building                    RM 205,000
                       Plant&machinery                 RM 75,000
                       Vehicle                                RM 50,000
                       Furniture                             RM 26,000
 
v       iii            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 scheme above and fully paid.
         x            The cost to fiancé this scheme amounting to RM 12,000
       xi            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 (418.4k/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)       Balance sheet on 31st 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


Q5 Syarikat Anduh


Balance sheet of Syarikat AHH before reorganization shows below:


Syarikat ANDUH
Balance sheet as at 31 December 2008
 
RM
Non-current assets:
 
Freehold land
525,000
Vehicles
750,000
Plant and machinery
1,250,000
Goodwill
50,000
 
 
Current assets:
 
Debtors
250,000
Inventories
125,000
 
2,950,000
Equity and liability:
 
2,500,000 ordinary shares of RM1.00(paid to 0.80 sen)
2,000,000
1,250,000 8% preference shares of RM1.00
1,250,000
 
3,250,000
Accumulated losses
(1,250,000)
 
2,000,000
Loan from directors
625,000
Creditors
200,000
Bank overdraft
(125,000)
 
2,950,000
 
 Note: There is a contingent liability of RM250,000

1.Uncalled capital to be called up and fully paid

2.The ordinary shareholders to surrender 2 for 1 at a price of RM1.00 per share. The existing preference shares are to be exchanged to ordinary shares of RM1.00 with ratio 1 for 2

3.Creditors of RM100,000 paid with ordinary shares 100,00 units of RM1.00 each

4.Freehold land of RM250,000 (net value) was revalued at RM375,000, which will be take by the directors as loan payment. Balance in loan from director was paid by cash

5.Balance of freehold land was revalued to RM550,000
6.The remaining assets are to be restated at the following fair value:
                Vehicles                               RM375,000
                Plant and machinery       RM1,000,000
7.Goodwill and accumulated losses to be written off
8.Old inventories of RM12,500 and bad debts of RM62,500 to be written off
9.Contingent liability of RM250,000 materialized and reorganization expenses of RM25,000 paid
10.The company agreed to issue 250,000 units ordinary shares at price of RM1.20 each and fully paid
You are required to prepared:
a)      Journal entries to record the above mentioned information
 b)  Balance sheet of Syarikat ANDUH immediately after the reorganization


Q6 SunSay Ld

Given below is the Statement of Financial Position of SunSay Ltd as at 31.12.2006

SunSay Ltd
                                                 Statement of Financial Position as at 31 December 2006




 

RM

RM

       Non Current Asset

       Property ,Plant and equipment

       Land and Building

       Plant and Machinery

        Goodwill

 

      Current Asset
 Inventories

        Debtors

 

        Current Liabilities
  Bank
  Creditors

         Bill Payable
net Current Assets

 

       Financed By:

Authorized Capital
1,000,000 5% Preference Shares @RM 1 per Share
2,000,000 Ordinary Shares @RM 1 per Share



       Issued and fully paid up Capital
600,000 5% Preference Shares @RM 1 per share
1,400,000 Ordinary Shares @RM 1 per share
Less:Call in arrears (on 20,000 ordinary shares of Rm0.25 each)


Accumulated Loss
 

 

400,000

360,000

 

 

 

 

126,000

110,000

236,000

 

(110,000)

(150,000)

(40,000)

 

 

760,000

100,000

860,000

 

 

 

 

 

 

 

 

 

(65,000)
795,000

 

 

 

1,000,000

2,000,000

3,000,000

 

 

600,000

1,400,000

2,000,000

    (5,000)

1,995,000   
 
 
1,200,000

795,000


The call in arrears of RM0.25 per share on 200,000 has not been received. A capital reduction scheme duly approved  by the court and the shareholders of SunSay Ltd.  It is to recover the financial position
of the company.

The Scheme agreed to by all parties is as follows: 
  1. To forfeit and Cancel  the 20,000 shares which are not fully paid up.

  2. To reduce the ordinary shares to RM0.10 per share and then to consolidated the reduce ordinary into RM1.00 orndinary shares

  3. The preference Shareholders to accept  500,000 ordinary shares of RM1 each in exchange for the 5% Preference shares.

  4. To write off accumulated loss and goodwill.

  5. Asset were revalued as follows:
    Land and Building                     RM433,000
  6. Plant and Machinery                      300,000
    inventories                                    100,000
    Debtors                                         106,000
  1. The authorised capital to be restored to RM3,000,000 in ordinary shares of RM1.00 each.

You are required to prepare :

  1. Journal Entries necessary to above transactions                                (15 marks )
  2. Capital Reduction Account                                                                      (5 marks )
  3. Statement of Financial Position after the completion of the
    capital reduction scheme as at 31 December 2006                             (5  marks )



Q8 Syarikat Senjana Bhd
  After a few years operating with loss , syarikat Senjana Sdn Bhd decides to have approval from related party to start capital reconstruction program. The following are balance sheet of syarikat Senjana Sdn Bhd as at 30 June 2006:



Authorized capital                                                                                           RM   (‘000 )

1,000,000 6% cumulative preferences share @ RM2 each                           2,000

3,000,000 ordinary share @ RM2 each                                                             6,000

 

Issued Capital

600 000 6% cumulative preferences share @RM2 each                                1,200

300 000 ordinary share @ RM2 each                                                                6,000

Debenture 5%                                                                                                        1,000

Share premium                                                                                                          145

P & L account                                                                                                         (2,250)

                                                                                                                                   6,095

Fixed Assets:

Freehold land & building                                                                                         2,870

Plant & machinery at cost                                                                    2,450

(-) Accumulated depreciation                                                                 735         1,715

Motor vehicle at cost                                                                               544

(-) Accumulated depreciation                                                                  215            329

Investment                                                                                                                    150

Goodwill                                                                                                                         187

Patent                                                                                                                             170

R & D expenses                                                                                                             259

                                                                                                                                     5,680

Current asset

Trade receivable                                                                               465

Stock                                                                                                   380

                                                                                                            845

(-) Current Liabilities:

Bank                                                                                                    165

Trade payable                                                                                    265

                                                                                                             430                      415

                                                                                                                                       6,095
Additional information

a)      The ordinary share to be reduced 60% per share from par value and preference share reduced 40% each from par valued. Both of share classify will be combined and converted into ordinary share with RM 1 per value.

b)      3 year arrear on preferences share dividend will be settled by issuing 2 ordinary shares for every RM 5 preference share dividend arrears.

c)       Assets ware revalue as follows:

I)                    Plant & machinery                                       RM  165 000

II)                  Motor vehicles                                             RM  278 000

III)                Stock                                                            RM  364 000

d)      Trade creditor agree to receive RM100 000 cash and remaining balance will be settled by receive 2 ordinary share for RM 3 each.

e)      The debenture holders took over a piece of land (cost RM180 000) at an agreed value of RM 245 000 in part settlement of the principal and remaining will be settled by issuing two ordinary share of RM1 each every RM5 debenture. The interest payable will fully paid by cash. The remaining freehold land was valued at RM2,772,000.

f)       Investment has sold at valued RM 185 000.

g)      The existing ordinary shareholders are accepting to subscribe for a new issue on the basis of one for 10 unit ordinary share held and fully paid. The authorized capital to be restored to RM5 in ordinary share of RM 1 each.

h)      The accumulated losses and all intangible assets be written off.

i)        Cost of reconstruction amounted to RM4 500

You are required to prepare

a)      CRA

b)      Ordinary share account

c)       Bank account

d)      The statement of Financial Position of Senjana Bhd after the capital reduction completed.


Let's us try this next question then...
    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.

Q9 Totokawa Ltd
 
On March 31, 2010, the following Statement of Financial Position shows the financial position of Teshinhan Ltd:
 
 
 

 

RM

RM

       Non-current Assets

 

 

         Plant and machinery (cost)

 

71,600

         Fittings and fixtures

 

4,200

         Goodwill

 

75,000

 

 

 

         Current Assets

 

 

         Stock

 

56,950

         Debtors

 

21,750

 

 

229,500

         Authorized Share Capital

 

 

         50,000 Preference Share 7% @ RM1.00

50,000

 

        700,000 Ordinary Share @ RM0.50

350,000

400,000

 

 

 

       Issued Share Capital

 

 

         50,000 Preference Share 7% @ RM1.00

 

50,000

         400,000 Ordinary Share @ RM0.50

 

200,000

         Profit and loss account

 

(61,300)

         Capital reserve

 

16,000

 

 

 

        Current Liabilities

 

 

         Creditors

 

10,600

         Bank overdraft

 

14,200

 

 

229,500
Here is the scheme of capital reduction allowed by the court and agreed by all shareholders.
  1. Preference share and ordinary shares will be reduced to RM0.75 and RM0.20 each.
  2. Both types of shares that have been reduced will be incorporated as a new ordinary shares of RM1.00 each.
  3. Capital reserve and profit and loss account is written off.
  4. The bank overdraft is fully funded through the issuance of 8% debentures issued and fully paid.
  5. Non-current assets will be reduced to :
                  Plant and Machinery (cost)                 RM 56,000
                  Fittings and Fixtures                             RM 2,000
                  Goodwill                                              RM 5,000
  1. The new resolution states the authorized share capital are 400,000 ordinary shares @ RM1.00 each.
 You are required to provide :
                                 i.            Journal Entries to record the capital reduction
                               ii.            Statement of Financial Position as soon as this scheme is completed.



Well done!  It's look your much more better to understand about this topic... and just try this last episode exercise in this topic and prepare for your test and quiz...


Hati Lurus Bhd had been approved by all parties to implement the capital reduction reserve scheme.  Below is the financial situation of the company as at 31.12.2010.
 


Hati Lurus Bhd
Statement of Financial Position as at 31 December 2010

Non-current asset
Land and building200,000
Fixtures 50,000
Investments70,000
Goodwill 80,000
Current Asset
Inventory200,000
600,000
Authorized capital
800,000 ordinary share of RM1 each800,000
200,000 5% preference share of RM 1 each 200,000_1,000,000
Issued Share Capital
600,000 ordinary shares of RM1 each600,000
100,000 5% preference shares of RM1 each100,000
Share premium50,000
Profit and loss account-400,000
8% debenture100,000
Current liabilities
Loan from directors100,000
Bank overdraft50,000_
600,000

                                                                                                                                        
Additional Information:
  1. Ordinary share has to be reduced to RM0.50 each and preference shares has to be reduced to RM0.75 each.
  2. Preference shareholder will receive one ordinary shares of RM0.50 for RM1.00 accrued dividend ( preference dividend accrued for 1 year)
  3. Asset to be revalued as follows :
                      Land and building             RM300,000
  Fixtures                               RM30,000
  Inventory                            RM90,000
  1. Share premium account, profit and loss account and intangible assets have to be written off
  2. The contingent liability amounting RM18,500 has been paid by company. However, companies can claim back from the insurance company of RM15,000
  3. Investment is sold for RM100,000
  4. The director have agreed to convert their loan to RM0.50 per share of ordinary share for every RM1.00 loan given and agreed to subscribe 80,000 units of ordinary shares at RM0.50 per share
  5. A special resolution has passed to convert the authorized capital to RM2,000,000 consist of 300,000 unit preference share at RM0.75 and 1,550,000 unit ordinary share of RM0.50

 




 
 
 

 
 
 



 

 

 
 



 







 

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