The document contains journal entries for capital reduction transactions for 9 questions. Some key details: 1) Question 1 shows journal entries to reduce share capital from Rs. 10 to Rs. 4 per share and adjust various asset accounts. 2) Question 2 contains entries to reduce share capital and debentures and transfer amounts to profit/loss, stock, etc. 3) Question 3 includes reducing share capital and debentures, transferring funds to adjust goodwill and various asset accounts. The document provides detailed journal entries for several capital reduction scenarios involving the adjustment of share capital, debentures, and asset and liability accounts.

1. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 1
Q.No 1:
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Equity share capital @ Rs 10
To Equity share capital @ Rs 4.
To Capital reduction A/C
500,000
200,000
300,000
2 Share premium A/C
To Capital reduction A/C
50,000
50,000
3. Capital reduction A/C
To Goodwill A/C
To Profit & loss A/C
To Stock A/C
To Land & Building A/C
To Plant & Machinery A/C
To Bad debts A/C
To Provision for bad debts A/C
350,000
120,000
95,000
10,000
36,000
78,000
4,000
7,000
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Share capital (50,000 X 4) 200,000 Land & building (152,00 - 36,000) 116,000
Creditors 162,000 Plant & machinery (278,000 – 78,000) 200,000
Bank overdraft 97,000 Stock (90,000 – 10,000) 80,000
Debtors 74,000
(-)Bad debts (4,000)
(-) Provision (7,000) 63,000
Total 459,000 Total 459,000
Q.No 2
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Equity share capital @ Rs 10 each
To Equity share capital @ Rs 5 each.
To Capital reduction A/C
100,000
50,000
50,000
2 100, 8% Debentures @ Rs 1000 each
To 500, 6% Debentures @ Rs100
To Capital reduction A/C
100,000
50,000
50,000
3. Capital reduction A/C
To Profit & loss A/C
To Stock A/C
To Preliminary expense A/C
To Plant & Machinery A/C
To Capital reserve A/C
100,000
50,000
10,000
10,000
20,000
10,000

2. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 2
Q.No 3 Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Equity share capital (20,000 X 10)
To Equity share capital @ (20,000.X 5)
To Capital reduction A/C
200,000
100,000
100,000
2 5% Debentures @ Rs 100
To 6% Debentures @ Rs 75
To Capital reduction A/C
100,000
75,000
25,000
3. Capital reduction A/C
To Goodwill A/C
To Profit & loss A/C
To Plant & machinery A/C
To Furniture A/C
To Stock A/C
To Provision for bad debts A/C
125,000
20,000
80,000
13,000
2,000
6,000
4,000
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Share capital (50,000X4) 100,000 Land & building 70,000
6% Debentures 75,000 Plant & machinery (85,000 – 13,000) 72,000
Creditors 30,000 Stock (35,000 – 6,000) 29,000
Bills payable 10,000 Furniture (8,000 – 2,000) 6,000
Debtor (40,000 – 4000) 36,000
Cash 2,000
Total 215,000 Total 215,000
Q.No4 Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Preference share capital@ Rs 20 each
To Preference share capital@ Rs 15 each
To Capital reduction A/C
1,000,000
750,000
250,000
2 Equity share capital @ Rs 20, Rs 15 Paid up
To Equity share capital @ Rs 10 Fully paid
To Capital reduction A/C
750,000
500,000
250,000
3. Capital reduction A/C
To Goodwill A/C
To Profit & loss A/C
To Plant & machinery A/C
To Investment A/C
To Capital reserve A/C
500,000
40,000
210,000
90,000
80,000
80,000

3. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 3
Q.No 5
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Preference share capital@ Rs 100 each
To Preference share capital@ Rs 50 each
To Capital reduction A/C
750,000
375,000
375,000
2 Equity shares @ Rs 100 each
To equity shares @ Rs 50 each
To Capital reduction A/C
500,000
125,000
375,000
3. Capital reduction A/C
To Leasehold Premises A/C
To Stock A/C
To Plant & machinery A/C
To Provision for bad debts A/C
To Profit & loss A/C
To Preliminary expense A/C
To Discount on issue of shares A/C
To Patents A/C (Balance figure)
750,000
30,800
15,000
8,400
15,040
115,000
10,000
20,000
535,760
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Equity Share capital 125,000 Patents 314,240
Preference share Capital 375,000 Leasehold Premises 100,000
Creditors 30,000 Plant & machinery 33,600
Bank old 20,000 Debtors 60,010
Stock 41,500
Cash 500
Total 550,000 Total 550,000
Q.No 6: Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Equity share capital @ Rs 50 each
To Equity share capital @ Rs 30 each
To Capital reduction A/C
400,000
240,000
160,000
2 Preference shares @ RS 50 each
To Preference shares @ Rs30 each
To Capital reduction A/C
400,000
240,000
160,000
3. Capital reduction A/C
To Profit & loss A/C
To Stock A/C
To Preliminary expenses A/C
To Provision for bad debts A/C
To Lease hold premises A/C
To Plant A/C
320,000
124,000
20,000
50,000
30,000
66,000
30,000

4. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 4
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Equity Share capital 240,000 Leasehold Premises 384,000
Preference shares Capital 240,000 Plant 50,000
Creditors 40,000 Debtors 70,000
Bank old 35,000 Stock 50,000
Cash 1,000
Total 550,000 Total 550,000
Q.No 7
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Equity share capital @ Rs 100 each
To Equity share capital @ Rs 50 each
To Capital reduction A/C
800,000
400,000
400,000
2 5% Preference shares@ Rs 100 each
To 7% Preference shares @ Rs 70 each
To Capital reduction A/C
300,000
210,000
90,000
3. Cash & Bank A/C (500 @ Rs 50)
To Equity Share capital A/C
250,000
250,000
4. Sundry creditors A/C
To Capital reduction A/C
To Cash & Bank A/C
125,000
25,000
100,000
5. Capital reduction A/C
To Cash & Bank A/C
7,500
7,500
6. Capital reduction A/C
To Goodwill A/C
To Profit & loss A/C
To Patents A/C
To Preliminary expenses A/C
To Plant & machinery A/C
To Stock A/C
To Provision for bad debts A/C
To Capital reserve A/C
507,500
150,000
210,000
45,000
20,000
45,000
20,000
4,500
13,000
BALANCE SHEET (after Reconstruction)
Liabilities Amount (Rs) Assets Amount (Rs)
Equity Share capital 650,000 Land & building 450,000
Preference share Capital 210,000 Plant& machinery (250,000 – 40,000) 205,000
Capital reserve 13,000 Debtors (90,000 – 4,500) 85,500
Bank over draft 105,000 Stock (135,000 – 20,000) 115,000
Secured loan 50,000 Cash (30,000 + 250,000 – 10,000 – 7,500) 172,000
Total 1,028,000 Total 1,028,000

5. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 5
Q.No 8:
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Equity share capital @ Rs 10 each
To Call in arrear @ (3000 X 7)
To Capital reduction A/C
30,000
9,000
21,000
2 Equity share Capital (9,000 X 3)
To Capital reduction A/C
27,000
27,000
3. Bank A/C (3,000 X 5)
Share forfeited A/C
To Equity Share capital A/C
15,000
6,000
21,000
4. Share forfeited A/C
Provision for tax A/C
To Capital reduction A/C
15,000
300
15,300
5. Capital reduction A/C
To Machinery A/C
To Profit & loss A/C
To Preliminary expense A/C
To Goodwill A/C
42,300
10,000
20,800
1,500
10,000
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Share capital 85,000 Building 20,500
Provision for tax 3,700 Machinery (50,850 – 10,000) 40,850
Sundry creditors 15,425 Sundry Debtors 15,000
Stock 10,275
Cash (1,500 + 15,000) 16,500
Total 103,125 Total 103,125

6. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 6
Q.No 9:
BALANCE SHEET (before Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Share capital (60% paid) 6,000,000 Fixed assets 700,000
10%, 1st
debenture 200,000 Investments 10,000
12%, 2nd
debenture 50,000 Stock 850,000
Trade creditors 1,150,000 Preliminary expense 20,000
Bank over draft 50,000 Profit & loss (Balancing figure) 1,000,000
Outstanding interest on
Debentures
80,000
Total 2,580,000 Total 2,580,000
Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. Share final call A/C
To Equity share Capital A/C
400,000
400,000
2 Bank A/C
To Share final call A/C
400,000
400,000
3. Equity share Capital Of Rs 100 each
To Equity share Capital of Rs 20 each
To Capital reduction A/C
1,000,000
200,000
800,000
4. 10% 1st
debentures A/C
To 13.5% debentures A/C
200,000
200,000
5. 12% 2nd
debentures A/C
To 15% debentures A/C
To capital reduction A/C
500,000
400,000
100,000
6. Sundry creditors A/C (Y)
To Bank A/C
To Capital reduction A/C
850,000
300,000
550,000
7. Sundry creditors A/C (1,150,000 – 850,000)
To Equity share Capital A/C
(15,000 shares @ Rs 20 each)
300,000
300,000
8. Investments A/C
To capital reduction A/C
10,000
10,000
9. Outstanding interest on Debentures A/C
To Capital reduction A/C
80,000
80,000
10. Capital reduction A/C
To Profit & loss A/C
To Preliminary expense A/C
To Fixed assets A/C
1,540,000
1,000,000
20,000
520,000

7. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 7
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Equity share capital 500,000 Fixed assets 180,000
13.5% debentures 200,000 Investments 20,000
15% debentures 400,000 Stock 850,000
Bank 50,000
Total 1,100,000 Total 1,100,000
Q.No 10: Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1. 6% Preference share Capital@ Rs 100 each
To 7.5% Preference share capital@ Rs 30
To Capital reduction A/C
200,000
60,000
140,000
2 Equity share Capital @ Rs 100 each
To Equity share Capital @ Rs 5 each
To Capital reduction A/C
300,000
15,000
285,000
3. Bank A/C (17,000 X 5)
To Equity share capital A/C
85,000
85,000
4. Sundry creditors A/C
To Equity share Capital A/C (150000 X1/3)
To Bank A/C
To Capital reduction A/C
150,000
50,000
50,000
50,000
5. Land & building A/C
Plant & Machinery A/C
To capital reduction A/C
20,000
22,000
42,000
6. Interest due on Debentures A/C
To Capital reduction A/C
10,000
10,000
7. Capital reduction A/C
To Profit & loss A/C
To Preliminary expenses A/C
To Goodwill A/C
To Patents A/C
To Stock A/C
To Debtors A/C
527,000
390,000
20,000
80,000
15,000
15,000
7,000
8. 7.5% Preference share capital@ Rs 30 each
To Equity share capital @ Rs 10 each
60,000
60,000
9. Equity share capital @ Rs 5
To Equity share capital @ Rs 10
150,000
150,000

8. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 8
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Equity Capital
(21,000 @ Rs 10)
210,000 Plant & machinery
Land & building
112,000
95,000
5% debentures 100,000 Patents 5,000
Stock 25,000
Debtors 32,000
Cash 41,000
Total 310,000 Total 310,000
Q.No 12:
Journal entries
Date. Particulars L/F. Dr. (Rs.) Cr. (Rs.)
1. 6% Preference share capitalA/C
To 8% Preference share capitalA/C
To Capital reduction A/C
300,000
225,000
75,000
2 Equity share capital @ Rs 10 each
To Equity share capital @ Rs8 each
To Capital reduction A/C
450,000
360,000
90,000
3. Capital reduction A/C
To Goodwill A/C
To Land & building A/C
To Plant & machinery A/C
To Sundry debtors A/C
To Profit & loss A/C
To Patents A/C
165,000
42,300
40,500
48,000
7,200
15,000
12,000
4. Cash & Bank A/C
To 12% Mortgage loan A/C
240,000
240,000
BALANCE SHEET (after Reconstruction)
Liabilities Amount(Rs) Assets Amount(Rs)
Capital 45,000 @ 8 360,000 Patent 6,000
Preference share 225,000 Land & building 229,500
12% S. loan 240,000 Plant & machinery 192,000
Sundry creditor 60,000 Stock 88,800
Bills payable 50,000 Debtor 143,700
Cash 140,000
Profit & loss 135,000
Total 935,000 Total 310,000

9. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 9
Q.No 15:
Journal entries
Date Particulars L/F. Dr. (Rs.) Cr. (Rs.)
1. 6% Preference share capital@ Rs 10 each
To 6% Preference share capital@ Rs 2 each
To Capital reduction A/C
300,000
60,000
240,000
2 Equity share capital @ Re 1 each
To Equity share capital @ Rs 0.25 each
To Capital reduction A/C
600,000
150,000
450,000
3. 6% Preference share capital@ Rs 2 each
To 6% Preference share capital@ Rs 10 each
240,000
240,000
4. Equity share capital @ Rs 0.25 each
To Equity share capital @ Re 1 each
150,000
150,000
5. Capital reduction A/C
To Equity share capital A/C
180,000
180,000
6. Cash & Bank A/C
To shares in Subsidiary Company A/C
To Capital reduction A/C
150,000
75,000
75,000
7. 8% Debentures A/C
To Land & building A/C
To Capital reduction A/C
60,000
54,000
6,000
8. Cash & Bank A/C
To 8% Debentures A/C
45,000
45,000
9. Interest A/C
To cash Bank A/C
6,000
6,000
10. Directors loan A/C
Capital reduction A/C
To Cash & Bank A/C
15,000
15,000
30,000
11. Director Loan A/C
To Cash Bank A/C
9,000
9,000
12. Director loan A/C
To Equity share capital A/C
51,000
51,000
13. Capital reduction A/C
To Profit & loss A/C
To Goodwill A/C
To Advertisement A/C
To Debtors A/C
To Stock A/C
To Capital reserve A/C
558,000
264,000
120,000
60,000
12,000
30,000
72,000

10. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 10
BALANCE SHEET (After Reconstruction)
Liability Amount(Rs
)
Assets Amount(Rs
)
6% Preference share 240,000 Land & building 213,000
Equity shares 219,000 Plant 155,000
Capital reserve 72,000 Stock 195,000
8% Debentures 105,000 Debtor 258,000
Bank old 165,000 Cash 150,000
Creditors 270,000
Total 1,071,000 Total 1,071,000
Q.No 16 SOLUTION:- Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1 Equity share 100
To Equity shares
400,000
400,000
2. Equity share capital
To Share surrender
85,000
85,000
3. Share surrender
To Equity share capital
Being debenture holder claim
115,000
115,000
4. Share surrender
To Equity share capital
Being creditor claim settled
45,000
45,000
5. Share surrender
Debenture A/C
Debenture interest
Sundry creditor
To Capital reduction
220,000
670,000
20,000
225,000
1,135,000
6. Capital reduction
To Profit & loss
To Land & building
1,135,000
535,000
600,000
7. Income tax
To Cash
5,000
5,000
BALANCE SHEET AFTER
Liability Amount(Rs
)
Assets Amount(Rs
)
Equity share capital 180,000 Land & building 115,000
Stock 40,000
Debtor 15,000
Investment 8,500
Cash 1,500
Total 180,000 Total 180,000

11. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 11
Q.No17 SOLUTION:- Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1 Equity share 100
To Equity shares
3,000,000
3,000,000
2. Equity share capital
To Share surrender
2,100,000
2,100,000
3. Share surrender
To Equity share capital
500,000
500,000
4. Share surrender
To Equity share capital
Being debenture claim settled
700,000
700,000
5. Share surrender
To Equity share capital
Being creditor 50% claim settled
200,000
200,000
6. Share surrender
To capital reduction
700,000
700,000
7. 11% Preference shares
15% Debentures
Debenture interest
Creditor
To Capital reduction
1,000,000
1,000,000
300,000
420,000
2,720,000
8. Capital reduction
To Profit & loss
To Goodwill
To Fixed assets
To Capital reserve
3,420,000
1,550,000
500,000
1,000,000
370,000
BALANCE SHEET AFTER
Liability Amount(Rs
)
Assets Amount(Rs
)
Capital 2,300,000 Fixed assets 2,000,000
Sundry creditor 420,000 Current assets 1,090,000
Capital reserve 370,000
Total 3,090,000 Total 3,090,000
Q.No 18 SOLUTION:- Journal entries
Date. Particulars. L/F. Dr. (Rs.) Cr. (Rs.)
1 Equity share 100
To Capital reduction
Being paid up capital reduced
80,750
80,750
2. Bank
To Equity share capital
Being again called
80,750
80,750

12. PART II CAPITAL REDUCTION M.COM FINAL
ARSHAD ISLAM; Lecturer in Accounting & Finance; E-Mail: arshad_mccm@yahoo.com Page 12
3. Bank loan
To Equity share capital
To Bank
60,000
15,000
45,000
4. Bank
To Equity share capital
50,000
50,000
5. Bank
To C.R.A
To 12% Debentures
To Bank
64,500
16,125
48,300
75
6. Bank overdraft
To capital reduction
To Bank
56,5000
6,500
50,000
7. Share Premium
To Capital reduction
15,000
15,000
8. Capital reduction
To Profit & loss
To Goodwill
To Share association
118,375
68,300
22,600
27,475
BALANCE SHEET AFTER
Liability Amount(Rs
)
Assets Amount(Rs
)
Capital 2,300,000 Free hold 41,500
12% Debentures 420,000 Plant 60,000
370,000 Investment 2,525
Other investment 16,000
Stock 23,000
Debtor 19,600
Cash 35,675
Total 198,300 Total 198,300
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