2. Internal reconstruction
Reorganisation of the capital structure of a
company
Noliquidation of thecompany.
Existing company carries business in a reorganised
form.
The claims of various parties viz. creditors,
debenture holdersand shareholdersare adjusted
3. Internal reconstruction
Alteration of ShareCapital under Sections61 and
64
Reductionof ShareCapital under Sections 66
Variation of Shareholders’RightsunderSection 48
under Scheme of Compromise/Arrangement
Sections230 and231
Surrender of shares
10. ALTERATIONOFSHARECAPITAL
Cancellation of unissued shares
Cancellation of shares which have not been taken up
by anyone.
No accountingentry required.
The Authorized share capital gets reduced by the
amountof unissuedsharesnow cancelled.
11. Internal reconstruction
REDUCTIONOfShare capital [sec66]
Special resolution required
Courts order
Filing with Registrar of Companies. Use of
the expression“AndReduced”for a specified time
Reasons of reduction to be published
12. REDUCTIONOFSHARECAPITAL
Reductionof the uncalled capital
It benefits the shareholders as they are not required to
pay the uncalled capital.
ShareCapital A/c(Face value)…………………..Dr.
ToShareCapital (Called up value)
13. Reduction through refund of excess
capital
ShareCapital A/c…………………Dr.
[amountof old
capital]
ToShareCapital A/c
[amountof new
capital]
ToShareholder’sA/c
[amountto be
refunded]
Shareholder’s A/c………………………..Dr.
ToBank A/c
14. Reduction of paid capital
Example: 1,000 equity sharesof 100each
Share Capital A/c(` 100)…..…..Dr. 80,000
To Reconstruction A/c 80,000
(Beingthepaid-up valueof a sharereducedfrom100 to20)
Reductioninthepaid upvalue only
Itmeansthenominalvalueof theshareremainsthe sameandonlythe
paid valueisreduced.
SHARECAPITALA/c……………….DR
ToReconstruction A/c
15. Reduction of paid capital
Reductionin both nominaland paid up value
Thisleads to a changein the category of share
capital
Share Capital A/c(Old value)…….…………..Dr.
ToShare Capital A/c (New Value)
ToReconstruction A/c
16. Reduction of paid capital
Theshareholderswillnot
ordinarilybewillingforthefirst
alternativesinceitputsadditional
burdenon them
17. VARIATIONOFSHAREHOLDERS’
RIGHT[Section 48]
It meanschangein rights and privileges attached to sharese.g.
rights to dividend, repayment of capital etc.
Forreduction in the rate of dividend :
9% CumulativePref. ShareCapital…………….Dr.
To7% CumulativePref. Share Capital
Forchangefrom cumulativeto non-cumulative :
9% CumulativePref. ShareCapital……………Dr.
To9% Non-Cumulative Pref. Share Capital
18. COMPROMISEANDARRANGEMENT
[ Section 230]
It is an agreement between a company and its
members and outside liabilities when the company
faces financial problems.
Such an arrangement involves sacrifices by
shareholders,creditors or debenture holders.
These sacrifices are also credited to Reconstruction
Account.
19. Reduction of claim by debenture
holders or creditors
DebenturesA/c…………………Dr.
With theamount
waivedor foregone
by them
CreditorsA/c…………………...Dr.
ToReconstructionA/c
20. Debenture holders accepting new
debentures of lower amount
(Old)DebenturesA/c…………………Dr.
[total paid up
value]
To(New)DebenturesA/c
[paid upvalue of
newdebentures]
ToReconstructionA/c [difference]
21. Appreciation in value of assets on
revaluation
FixedAssetsA/c………………Dr. With theamount of
appreciationToReconstructionA/c
22. Sale of fixed assets at a
profit
BankA/c……………….…………Dr. Sale Price
ToReconstructionA/c Profit onsale
ToFixedAssetsA/c
Bookvalueofassets
sold
24. Preference dividend
Arrears of Dividend (i.e. not given in the Balance Sheet) but
paid now
ReconstructionA/c……………….…Dr.
Dividendpayable
ToPreferenceShareholders A/c
25. Writing off fictitious and intangible
assets
ReconstructionA/c…………………Dr.
ToProfit andLossA/c
ToPreliminaryExpensesA/c
ToDiscountonissueof shares
ToGoodwill,Patents,TradeMarks etc.
26. Adjustment of over-valued assets
and unrecorded liability
ReconstructionA/c…………………Dr.
ToPlant& Machinery A/c
ToOtherFixedassetsA/c
ToUnrecorded liability