Solution to Reconstruction Problem
Journal Entries for Reconstruction
1. Reduction of Equity Shares from INR10 to INR1:
Equity Share Capital A/c (INR10 each) Dr. INR10,00,000
To Equity Share Capital A/c (INR1 each) INR1,00,000
To Reconstruction A/c INR9,00,000
2. Payment of 50% Preference Dividend in Arrears (INR40,000):
Reconstruction A/c Dr. INR40,000
To Bank A/c INR40,000
3. Depreciation of Machinery by 5%:
Reconstruction A/c Dr. INR50,000
To Machinery A/c INR50,000
4. Provision for Doubtful Debts at 10% on Trade Receivables (INR2,00,000):
Reconstruction A/c Dr. INR20,000
To Provision for Doubtful Debts A/c INR20,000
5. Write-Off of Intangible and Fictitious Assets (Goodwill INR2,00,000):
Reconstruction A/c Dr. INR2,00,000
To Goodwill A/c INR2,00,000
6. Transfer of Balance in Reconstruction A/c to Capital Reserve:
Balance in Reconstruction A/c after adjustments = INR9,00,000 - INR40,000 - INR50,000 -
INR20,000 - INR2,00,000 = INR6,90,000
Reconstruction A/c Dr. INR6,90,000
To Capital Reserve A/c INR6,90,000
Draft Balance Sheet After Reconstruction
Equity and Liabilities:
| Particulars | Amount (INR) |
|-------------------------------------|------------|
| **Shareholders' Funds:** | |
| Equity Share Capital (INR1 each) | 1,00,000 |
| 10% Cumulative Preference Shares | 2,00,000 |
| Capital Reserve | 6,90,000 |
| **Current Liabilities:** | |
| Provision for Doubtful Debts | 20,000 |
| Total | 10,10,000 |
Assets:
| Particulars | Amount (INR) |
|-------------------------------------|------------|
| **Non-Current Assets:** | |
| Property, Plant & Equipment | 9,50,000 |
| **Current Assets:** | |
| Inventories | 2,50,000 |
| Trade Receivables | 1,80,000 |
| Bank | 30,000 |
| Total | 10,10,000 |
