The paid up value Of preference share and equity Share was to be reduced by 25% and 75% respectively. the face value will remain unchanged. show me journal entry of internal reconstruction and capital reduction chapter?

Question

Answer

I think for this you have to reduce the number of shares if face value remain unchanged..

Answer

Journal Entry for Internal Reconstruction and Capital Reduction:
- Reduction of Preference Share Paid Up Value:
- Preference Share Paid Up Value A/c Dr. (25% of original value)
- Capital Reduction A/c Cr. (25% of original value)
- Reduction of Equity Share Paid Up Value:
- Equity Share Paid Up Value A/c Dr. (75% of original value)
- Capital Reduction A/c Cr. (75% of original value)
- Explanation:
Internal reconstruction involves reorganizing a company's financial structure without winding up the company. In this case, the paid-up value of preference shares and equity shares are being reduced to improve the financial position of the company.
- Impact of Reduction:
- Preference shareholders will have a reduced claim on the assets of the company.
- Equity shareholders will experience a significant reduction in their ownership stake in the company.
- Reasons for Capital Reduction:
- To eliminate accumulated losses and improve the financial health of the company.
- To align the company's capital structure with its current financial position.
- Legal Compliance:
- The reduction in share capital must comply with the regulations set by the Companies Act.
- Shareholders' approval and court approval may be required for the capital reduction.
- Financial Reporting:
- The reduction in share capital will be reflected in the company's financial statements.
- Shareholders will be informed of the capital reduction through a disclosure in the annual report.
- Conclusion:
Internal reconstruction and capital reduction are strategic financial decisions aimed at enhancing the company's financial stability and improving its long-term sustainability. Proper planning and compliance with legal requirements are essential for a successful capital reduction process.

Similar B Com Doubts

Balance sheet as at 31 march 2012 6000 preference share of 100 each. 110000 equity share of 10 each. One 5rs. Equity share to be issued for each 10rs. Preference share dividend in arrar. Dividend on preference share is an arrear from 1 april, 2009 ( Internal Reconstruction)?

Balance sheet as at 31 march 2012 6000 7% preference share of 100 each. 110000 equity share of 10 each. One 5rs. Equity share to be issued for each 10rs. Preference share dividend in arrar. Dividend on preference share is an arrear from 1 april, 2009 .( Internal Reconstruction)?

A merchant changed the trade discount from 20% to 25%. By what percent should the selling price be changed so that the amount available to the trader remains unchanged?

Which type of amalgamation involves the pooling of assets, liabilities, and reserves, and ensures that shareholders of the transferor companies retain a substantial share in the equity of the transferee company?

What type of reconstruction involves creating a new company to take over the business of a company in financial crisis?

Top Courses for B Com

Suggested Free Tests

Related Content

Schools

Competitive Examinations

Quick Access Links

Technical Exams