mc 302 advanced financial management

1. Presentation on topic :
Financial Restructuring
Presented By : - Sangeeta Saini
M.Com (Final)
671

2. Contents
• Introduction
• Meaning of financial restructuring.
• Causes of financial restructuring.
• Need of financial restructuring.
• Reorganization of capital.
• Conclusion .

3. INTRODUCTION
Restructure
Re
Again
Structure
Construct
or arrange
Restructure is a combination of two words re + structure .
When the organisations have to
rearrange or rebuild its internal
structure to bring more efficiency
and competitiveness, it is called
restructuring of the organisation .
Restructuring can give new life to
the organisation. It is essential for
a loss making organisation to
restructure in order to come back
in the competition.

4. Meaning of financial restructure
 Financial restructuring
is a process of
rearranging the
financial structure to
avoid the liquidation of
the company.

5.  Misappropriation of funds :- If the funds are not utilized properly and invested in
wrong projects that may not generate enough funds to pay off liabilities on time.
Thus situation may lead to debt trap and further insolvency.
 Obsolete :- with the advent of new technology when the old technology becomes
obsolete , it may generate huge losses.
 Lack of optimum utilisation of resources :- if the resources are not properly
utilised , it will lead to wastage of time and money .This will increase the cost of
the product thus making the company uncompetitive in the market.
 Inefficient management :- the inefficient management of financial , human and
technical resources also lead to huge losses.
 External factors :- such as international conditions, population trends ,
competitive factors, shift in technology etc. are some of the factors that may lead
a company into losses.

6. Need of financial
restructuring
At the time of
promotion/
incorporation
of a company
At the time of
expansion of
an existing
company.
At the time of
amalgamation
and
absorption of
two or more
companies.
At the time of
re-
organisation
of capital of
the company

7. It is the desire of every company to
have a fairly capitalised situation
i.e. neither over capitalisation nor
under capitalisation.
Restructuring of over
capitalised company
Buy back of the
share.
Redemption of
preference share
Reduction of
debt.
Re-organisation
of equity capital
Restructuring of under
capitalised company
Fresh issue of
share .
Issue of bonus
share.
Increasing par
value of shares

8. Re-
organisation
of capital
Alteration in
share capital
Reduction in
share capital

9. METHODS OF ALTERATION IN SHARE CAPITAL
 Increase in share capital :- Increase in share capital
by issue of new shares.
 Consolidation of shares :- The company can
consolidate its all or part of existing shares of
smaller denomination into shares of bigger
denomination.
for example :- X ltd. Having a share capital of Rs.
20,00,000 divided into 2,00,000 shares of Rs. 10
each, resolve to consolidate the shares into 20,000
shares of Rs. 100 each.
Share capital A/c (Rs. 10) Dr. 20,00,000
To share capital A/c (Rs. 100) 20,00,000

10.  The company can sub divide its existing
shares of bigger denomination into shares
of smaller denomination
For example :- if 5,000 shares of Rs. 100
each, Rs. 80 paid up are sub divided into
50,000 shares of Rs. 10 each , the paid
amount must be Rs. 8 per share.
Share capital A/c (Rs.100) Dr. 4,00,000
To share capital A/c (Rs. 10 ) 4,00,000

11.  The fully paid up shares of company can be
converted into stock or its stock can be
reconvert into shares .
For example :- A ltd. Resolved to convert its
10,000 shares of Rs. 10 fully paid up into Rs.
1,00,000 worth of equity stock.
Equity Share capital A/c Dr. 1,00,000
To equity stock A/c 1,00,000

12. Reduction in share capital
The capital must be authorised by
its article of association to reduce
the share capital . If it is not so ,
then it must alter its article of
association.
A special resolution to reduce the
share capital must be passed in
general meeting of shareholders
and copy thereof should be filed
with the registrar within 30 days of
passing a resolution.
A certified copy of the court ‘s
confirmation order and changed article
of association must be filed with the
registrar of companies for registration
within 3 months of the court’s order.
The registrar shall, then register the
same and issue a certificate of
registration within one month.
Conditions for reductions of share capital

13. Reducing the liability in respect of uncalled amount of shares
:-For example , the capital of X ltd. Which consist of 50,000
equity shares of Rs. 10 each (Rs. 8 paid ) is now reduced to
50,000 equity shares of Rs. 8 each fully paid. In such a case
the shareholders benefit because they are not required to pay
Rs. 2 in future.
Equity Share capital A/c (Rs.10) Dr. 4,00,000
To Equity share capital A/c (Rs. 8) 4,00,000

14. (A) Share capital A/c Dr.
To sundry shareholders A/c
(B) Sundry shareholders A/c Dr.
To bank A/c

15. Conclusion

17. Any Questions
……??????