Journal Entries to Reduce Share Capital and Wipe Off Losses

1. Reverse the Share Capital Account
- Debit Share Capital Account with the amount of the reduction (Rs. 1 per share x 100,000 shares = Rs. 1,00,000)
- Credit Capital Reduction Account with the same amount (Rs. 1,00,000)

2. Reverse the Loss Account
- Debit Loss Account with the amount of the loss (Rs. 50,000)
- Credit Capital Reduction Account with the same amount (Rs. 50,000)

3. Wipe Off the Capital Reduction Account
- Debit Capital Reduction Account with the total amount (Rs. 1,50,000)
- Credit Share Capital Account with the original amount (Rs. 1,00,000)
- Credit Profit and Loss Account with the remaining amount (Rs. 50,000)

Explanation

Reducing share capital means decreasing the nominal value of shares, which is done by cancelling the excess amount in the Share Capital Account and transferring it to a Capital Reduction Account. This is a non-cash transaction that does not affect the net assets of the company.

Wiping off losses means eliminating the accumulated losses in the Profit and Loss Account, which is done by transferring them to a Capital Reduction Account. This is also a non-cash transaction that does not affect the net assets of the company.

The journal entries for these transactions are as follows:

The first entry reverses the Share Capital Account by debiting it with the reduction amount and crediting the Capital Reduction Account with the same amount. This is to show that the reduction is not a real loss but a bookkeeping entry.

The second entry reverses the Loss Account by debiting it with the loss amount and crediting the Capital Reduction Account with the same amount. This is to show that the loss is not a real loss but a bookkeeping entry.

The third entry wipes off the Capital Reduction Account by debiting it with the total amount and crediting the Share Capital Account with the original amount and the Profit and Loss Account with the remaining amount. This is to show that the reduction and the loss are both eliminated and the net assets of the company remain unchanged.