This document discusses internal reconstruction in companies. It defines internal reconstruction as occurring when a company has been making losses for years such that its financial statements no longer present an accurate view of its financial position. The document outlines various types of internal reconstruction including altering share capital through increasing, decreasing, consolidating, or subdividing shares. It also discusses reducing share capital, compromising with shareholders, and surrendering shares. The accounting treatments for various aspects of internal reconstruction are provided. The overall purpose is to understand the meaning and objectives of internal reconstruction and the accounting adjustments required.

1. INTERNAL RECONSTRUCTION
DR.AVESH KUMAR
M.COM., NET PH.D.
ASSISTANT PROFESSOR
SMP GOVERNMENT GIRLS
(PG) COLLEGE, MEERUT

2. OBJECTIVES OF INTERNAL
RECONSTRUCTION
• UNDERSTAND THE MEANING OF INTERNAL
RECONSTRUCTION
• SUB-DIVIDED AND CONSOLIDATE SHARE
• CONVERT SHARE INTO STOCK AND STOCK
INTO SHARE
• ACCOUNT THE ADJUSTMENTS AT THE TIME OF
INTERNAL RECONSTRUCTION

3. MEANING
• WHEN A COMPANY HAS BEEN MAKING LOSSES
FOR A NUMBER OF YEARS, THE FINANCIAL
POSITION DOSE NOT PRESENT THE TRUE AND
FAIR VIEW OF THE STATE OF THE AFFAIRS OF THE
COMPANY.
• IN SUCH A COMPANY OVERVALUED THE ASSETS
SIDE OF THE BALANCE SHEETCONSIST OF THE
FICTITIOUS ASSETS, UNLESS INTENGIBLE ASSETS
AND DEBIT BALANCE OF PROFIT AND LOSS
ACCOUNT.

4. DIFERENCE BETWEEN INTERNAL AND
EXTERNAL RECONSTRUCTION

5. TYPES OF INTERNAL
RECONSTRUCTION
• ALTERATION IN SHARE CAPITAL
• CHANGE IN THE SHAREHOLDERS’ RIGHTS
• REDUCTION IN THE SHARE CAPITAL

6. 1. ALTERATION IN SHARE CAPITAL
ACCORDING TO SEC.61 OF COMPANIES ACT
2013, A COMPANY CAN ALTER ITS’ CAPITAL
RALATED SATTELMENT IN MOA IF THERE ARE
THE AUTHARISATION FOR THIS IN ITS’ AOA.
THERE ARE NO NEED FOR OF TRIBUNAL
CONFIRMATION FOR THIS.

7. ALTERATION IN SHARE CAPITAL
• INCREASE IN SHARE CAPITAL
• DECREASE IN SHARE CAPITAL BY CANCELLING
THE UNISSUED SHARES
• CONSOLIDATION OF SHARE CAPITAL
• SUB DIVISION OF SHARE CAPITAL
• CONVERSION OF SHARES IN STOCK AND
RECONVERSION OF STOCK IN SHARES
• RESERVRE CAPITAL

8. INCREASE IN SHARE CAPITAL
A COMPANY CAN INCREASE ITS SHARE CAPITAL UNDER
THE LIMIT OF AUTHORISED CAPITAL BY PASSING A
GENERAL RESULATION IN GENERAL MEETTING.
FOR INCREASE IN AUTHORISE CAPITAL THERE ARE NEED
OF SPECIAL RESULATION AND CHANGES IN MOA. AFTER
THIS CHANGES IT IS NECESSARY TO INFORM THE
REGISTRAT WITIHIN 30 DAYS.
ACCORDING TO SEC 61(1) (a) OF COMPANIES ACT 2013
THERE ARE NO NEED OF JOURNAL ENTRY FOR INCREASE
IN AUTHORISE CAPITAL BUT ENTRY FOR NEW ISSUE OF
SHARE WILL BE RECORD IN JOURNAL

9. DECREASE IN SHARE CAPITAL BY
CANCELLING THE UNISSUED SHARES
A COMPANY CAN CANCELL ITS SHARE WHICH WAS
NOT PURCHASE OR NOT AGREE TO PURCHASE BY
ANY PERSON AT THE DATE OF RESOLUTION PASED
FOR IT. BUT….
SEC. 61 (1) (E) – THIS IS NOT REDUCTION OF
CAPITAL
SEC.61 (21) PAID UP CAPITAL OF COMPANY REMAIN
SAME
NOTE : NO ENTRY REQUIRED FOR THIS, ONLY
CHANGE IN AUTHORISED CAPITAL AMOUNT AND
NO. OF SHARE IN BALANCE SHEET

10. CONSOLIDATION OF SHARE CAPITAL
CONSOLIDATION OF SHARE CAPITAL REFER TO CONVERT THE
LOWER PRICE OF SHARE INTO HIGER PRICE OF SHARE.
SHARE @ RS. 10 EACH SHARE @ RS. 100 EACH
IF THE VOTING PERCENTAGE OF SHAREHOLDERS CHANGE
THEN CONSLIDATION ONLY EFFECTIVE AFTER THE APPROVAL
OF TRIBUNAL.
SEC. 61 (1) (b) THE RATIO OF PAID UP AND UNPAID AMOUNT
SHOULD BE SAME AFTER CONSOLIDATION.
THE FOLLOWING JOURNAL ENTRY WILL BE PASSED:
SHARE CAPITAL (OLD DENOMINATION A/C Dr.
TO SHARE CAPITAL (NEW DENOMINATION) A/c

11. SUB-DIVISION OF SHARE CAPITAL
SUB-DIVISION OF SHARE CAPITAL REFER TO CONVERT THE HIGHER PRICE OF
SHARE INTO LOWER PRICE OF SHARE.
SHARE @ RS. 100 EACH SHARE @ RS. 50 EACH
ACCORDING TO SEC. 61 (1) (d) COMPANY HAS RIGHT TO DO AS SUCH BUT THE
OLD RATIO REMAIN SAME. JOURNAL ENTRY FOR THIS:
SHARE CAPITAL (OLD DENOMINATION A/C Dr.
TO SHARE CAPITAL (NEW DENOMINATION) A/c

12. CONVERSION OF SHARE IN STOCK AND
RECONVERSION OF STOCK IN SHARE
ANY COMPANY CAN CONVERT IT SHARE INTO
STOCK AND RECONVERT STOCK INTO SHARE IF
AUTHORISED BY ITS AOA. FOLLOWING ENTRY
PASSED FOR IT:
1. CONVERSION OF SHARE INTO STOCK
SHARE CAPITAL A/c Dr.
TO STOCK A/c
2. RECONVERSION OF STOCK INTO SHARE
STOCK A/c Dr.
TO SHARE CAPITAL A/c

13. RESERVE CAPITAL
ACCORDING TO SEC 99 OF COMPANIES ACT
1956, ANY COMPANY DECIDE IN SPECIAL
RESOLUTION THAT UNPAID AMOUNT OF ISSUED
SHARE CAPITAL ONLY CALL AT THE TIME OF
LIQUIDATION. AS SUCH PART OF SHARE CAPITAL
CALLED RESERVE CAPITAL. THERE ARE NO NEED
OF JOURNAL ENTRY FOR THIS, BUT THIS WORD
REMOVE IN COMPANIES ACT 2013.

14. 2. VARIATION IN SHAREHOLDERS’
RIGHT

15. 3. REDUCTION IN SHARE CAPITAL
GENERALLY REDUCTION IN SHARE CAPITAL KNOWN AS INTERNAL
RECONSTRUCTION. REDUCTION IN SAHRE CAPITAL S NECESSARY IN THE
FOLLOWING CONDITION.
1. BALANCE SHET DOSE NOT PRESENT THE ACTUAL POSITION.
2. ASSETS DOSE NOT PRESENT THE ACTUAL BOOK VALUE.
3. COMPANY DOSE NOT CAPABLE TO PAY LOAN.
4. OVER CAPITALIZATIO.
ACCORDING TO THE SEC 66 OF COMPANIES ACT 2013 REDUCTION IN CAPITAL
CAN BE DINE BY THE FOLLOWING CONDITION
1. REDUCTION IN SHRE CAPITAL SHOULD BE MENTION IN AOA OF
COMPANY.
2. A SPECIAL RESOLUTION SHOULD BE PASSED.
3. APPROVAL OF SPECIAL RESOLUTION IS NECESSARY BY TRIBUNAL.
4. RESOLUTION OF COMPANY AND APPROVAL OF TRIBUNAL SHOULD BE
SENT TO REGISTRAR.

16. FORMS OF CAPITAL REDUCTION

17. USES OF CAPITAL REDUCTION
ACCOUNT
AMOUNT CREDIT IN CAPITAL REDUCTION ACCOUNT CAN BE USE TO
WRITE OFF THE LOSES, ARTIFICIAL ASSETSNAD OVERVALUED ASSETS.
IF THERE ARE REMAINING SOME BALANCE AFTER WRITE OFF THEN
THAT AMOUNT TRANSFERRED TO CAPITAL RESERVR ACCOUNT.
JOURNAL ENTRY FOR THIS:
CAPITAL REUCTION A/c Dr.
TO GOODWILL A/c
TO PATENTS A/c
TO TRADE MARK A/c
TO PRELIMINARY EXPENSES A/c
TO DISCOUNT ON SHARE AND DBENTURE A/c
TO UNRCORDED LIABILITY (IF ANY) A/c
TO OVERVALUED ASSETSA/c
TO CAPITAL RESERVE (IF ANY BAL.) A/c

18. COMPROMISE/ARRANGEMENTS

19. SURRENDERS OF SHARES

20. ACCOUNTING TREATMENT FOR
INTERNAL RECONSTRUCTION
PARTICULARS LF AMOUNT AMOUNT
1. WHEN SHAREHOLDERS’ SACRIFIED THEIR CLAIM
ON RESERVE AND PROFIT:
RESERVE ACCOUNT Dr.
PROFIT AND LOSS A/c Dr.
TO CAPITAL REDUCTION A/c
2. INCREASE IN THE VALUE OF FIXED ASSETS
FIXED ASSETS A/c Dr.
TO CAPITAL REDUCTION A/c
3. PROFIT ON SALE OF FIXED ASSETS
BANK A/c Dr.
TO FIXED ASSETS A/c
TO CPAITAL REDUCTION A/c

21. PARTICULARS LF AMOUNT AMOUNT
4. SETTALEMENT OF OUTSIDE LIABILITIES AT SHORT PAY
OUTSIDE LIABILITIES A/c Dr. SACRIFICED
AMOUNTPROVISION (IF ANY) A/c Dr.
TO CAPITAL REDUCTION A/c
5. PAYMENT OF OUTSIDE LIABILITIES
OUTSIDE LIABILITIES A/c Dr.
TO BANK A/c WHICHEVER
TO BE PAIDTO SHARE CAPITAL A/c
TO NEW DEBENTURE A/c
TO ASSETS A/c
6. SACRIFICED OF DECLARED DIVIDENT SHOWN IN B/S
PROPOSED OR DECLARED DIVIDEND A/c Dr.
TO CAPITAL REDUCTION A/c
7. SACRIFICED OF ARREAR PREF. DIVIDENT NOT SHOWN IN B/S
(NO ENTRY)

22. PARTICUALRS LF AMOUNT AMOUNT
8. ARREAR PREF.DIVIDENS WHICH IS NOT SHOWN IN
B/S BUT TO BE PAID
(A) FIRST ENTRY
CAPITAL REDUCTION A/c Dr.
TO PREF. SHAREHOLDERS A/c
(B)
PREF. SHAREHOLDERS A/c Dr.
TO BANK A/c

23. EXAMPLE

29. TAKE CARE AAL OF YOU FROM
CORONA VIRUS BY ADDOPTING THE
GUIDELINE OF EXPERTS AND FOLLOW
THE RULE OF GOVERNMENT AND
ADMINISTRATION
THANKING YOU