Reconstruction of Companies problem with answer is discussed in this PPt. #ReconstructionofComapnies #Dr MamataRathi #InternalReconstruction #Externalreconstruction #ReconstructionNotes #ReconstructionBcomSY #Accounting #Corporate Accounting

1. RECONSTRUCTION OF COMPANIES:
SOLVED PROBLEM : 3
ISSUE OF DEBENTURES FOR WORKING
CAPITAL

2. PROBLEM : 3
Balance Sheet
Liabilities Amont Assets Amount
Share Capital : Goodwill 50,000
50,000 Equity shares of Rs
100 each fully paid
5,00,000
Land and Buildings 1,50,000
Plant and Machinery 1,00,000
S. Creditors 2,30,000 Stock 2,00,000
Bank Overdraft 20,000 Debtors 1,50,000
Profit and Loss 1,00,000
7,50,000 7,50,000
The Rathi Co. having suffered heavy losses, decided to reconstruct.
The Balance Sheet of the company on the date of reconstruction
was as follows

3. The following scheme of reconstruction was approved :
1. The shareholders to receive in lieu of their present holding the following :
a. Fully-paid Equity shares equal to 2/5th of their holding.
B. 10% Preference Shares, fully paid, to the extent of 1/5th of the above new
Equity Shares.
c. Rs. 60,000 10% second debentures.
2. An issue of Rs. 50,000 9% first Debentures was made and allowed,
payment for the same having been received in cash which was used to repay
Bank Overdraft and to provide for working capital.
3. The profit and Loss account debit balance and Goodwill to be written off
completely.
4. Land and Building and Plant and Machinery are to be valued at Rs.
1,25,000 and Rs. 75,000 respectively.
Make journal entries and prepare the new Balance Sheet.

4. JOURNAL ENTRIES IN THE BOOKS OF RATHI COMPANY
Date Particulats
L.
F.
Debit
Amount
Credit
Amount
1
Old Equity Share Capital A/c Dr
To New Equity Share Capital A/c
To 10% Preference Share Capital A/c
To 10% Second debentures A/c
To Capital reduction A/c
(Being issue of new shares and Debentures in
exchange for old)
5,00,000
2,00,000
40,000
60,000
2,00,000
2
Capital Reduction A/c Dr
To Goodwill A/c
To Profit and Loss A/c
To Land and Buildings A/c
To Plant and Machinery A/c
(Being depreciation in the values of assets)
2,00,000
50,000
1,00,000
25,000
25,000
3
Cash A/c Dr
To 9% First Debentures A/c
(Being cash received on issue of debentures)
50,000
50,000

5. NEW BALANCE SHEET
AS ON 31ST DEC, 2020
Balance Sheet
Liabilities Amont Assets Amount
Share Capital : Land and Buildings 1,25,000
Equity Shares 2,00,000
Plant and Machinery 75,000
Stock 2,00,000
10% Preference Shares 40,000 Debtors 1,50,000
Debentures :
9% First debentures
10 % Second Debentures
50,000
60,000
Cash 30,000
S. Creditors 2,30,000
5,80,000 5,80,000

6. THANK YOU