PPT: Internal Reconstruction | Advanced Accounting for CA Intermediate PDF Download

 Page 1


Internal Reconstruction
Page 2


Internal Reconstruction
What is Reconstruction?
• Reconstruction is a process of the company’s 
reorganization, concerning legal, operational, 
ownership and other structures, by revaluing 
assets and reassessing the liabilities.
• It refers to the transfer of company or several 
companies’ business to a new company. 
Page 3


Internal Reconstruction
What is Reconstruction?
• Reconstruction is a process of the company’s 
reorganization, concerning legal, operational, 
ownership and other structures, by revaluing 
assets and reassessing the liabilities.
• It refers to the transfer of company or several 
companies’ business to a new company. 
Objectives of Reconstruction
1. To resolve the problem of over-capitalization/huge accumulated 
losses/over valuation of assets. 
2. When the capital structure of a company is complex and is 
required to make it simple 
3. When change is required in the face value of shares of the 
company 
4. To generate surplus for writing off accumulated losses & writing 
down overstated assets.
5. Raising the fresh capital by issuing new shares. 
6. Changing altogether the memorandum of association of the 
company. 
7. To generate cash for working capital needs, replacement of 
assets, to add balancing equipment’s, modernise plant & 
machinery etc.
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Internal Reconstruction
What is Reconstruction?
• Reconstruction is a process of the company’s 
reorganization, concerning legal, operational, 
ownership and other structures, by revaluing 
assets and reassessing the liabilities.
• It refers to the transfer of company or several 
companies’ business to a new company. 
Objectives of Reconstruction
1. To resolve the problem of over-capitalization/huge accumulated 
losses/over valuation of assets. 
2. When the capital structure of a company is complex and is 
required to make it simple 
3. When change is required in the face value of shares of the 
company 
4. To generate surplus for writing off accumulated losses & writing 
down overstated assets.
5. Raising the fresh capital by issuing new shares. 
6. Changing altogether the memorandum of association of the 
company. 
7. To generate cash for working capital needs, replacement of 
assets, to add balancing equipment’s, modernise plant & 
machinery etc.
Types of Reconstruction 
• A company can be reconstructed in any of the 
two ways. 
• These are: 
• 1. External Reconstruction
• 2. Internal Reconstruction.
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Internal Reconstruction
What is Reconstruction?
• Reconstruction is a process of the company’s 
reorganization, concerning legal, operational, 
ownership and other structures, by revaluing 
assets and reassessing the liabilities.
• It refers to the transfer of company or several 
companies’ business to a new company. 
Objectives of Reconstruction
1. To resolve the problem of over-capitalization/huge accumulated 
losses/over valuation of assets. 
2. When the capital structure of a company is complex and is 
required to make it simple 
3. When change is required in the face value of shares of the 
company 
4. To generate surplus for writing off accumulated losses & writing 
down overstated assets.
5. Raising the fresh capital by issuing new shares. 
6. Changing altogether the memorandum of association of the 
company. 
7. To generate cash for working capital needs, replacement of 
assets, to add balancing equipment’s, modernise plant & 
machinery etc.
Types of Reconstruction 
• A company can be reconstructed in any of the 
two ways. 
• These are: 
• 1. External Reconstruction
• 2. Internal Reconstruction.
BASIS FOR 
COMPARISON
INTERNAL RECONSTRUCTION EXTERNAL RECONSTRUCTION
Meaning Internal reconstruction refers to 
the method of corporate 
restructuring wherein existing 
company is not liquidated to form 
a new one.
External reconstruction is one in 
which the company undergoing 
reconstruction is liquidated to take 
over the business of existing 
company.
New company No new company is formed. New company is formed.
Use of specific terms 
in Balance Sheet
Balance Sheet of the company 
contains "And Reduced".
No specific terms are used in the 
Balance sheet.
Capital reduction Capital is reduced and the 
external liability holders waive 
their claims.
No reduction in the capital
Approval of court Approval of court is must. No approval of court is required.
Transfer of Assets 
and Liabilities
No such transfer takes place. Assets and liabilities of existing 
company are transferred to the new 
company