Solution: Internal Reconstruction
Step 1: Adjusted Journal Entries
Equity Share Capital (Rs. 10 each) A/c Dr. 500
To Equity Share Capital (Rs. 2 each) A/c 100
To Reconstruction A/c 400
(Being equity shares reduced to Rs. 2 each as per the reconstruction scheme)
8% Preference Share Capital (Rs. 100 each) A/c Dr. 200
To 8% Preference Share Capital (Rs. 80 each) A/c 160
To Reconstruction A/c 40
(Being preference shares written down to Rs. 80 each instead of Rs. 30)
Reconstruction A/c Dr. 20
To Preference Shareholders A/c 20
(Being 1/3rd of arrears of dividend settled by allotment of equity shares at Rs. 2 each)
Debenture Holders A/c Dr. 150
To Freehold Property A/c 150
(Being part payment of debentures by transferring freehold property at book value)
Step 2: Adjusted Reconstruction Account
To Preference Share Capital Reduction 40 By Equity Share Capital Reduction
To Equity Share Capital Reduction 400 By Preference Share Capital Reduction
To Preference Dividend Waived 40 By Profit on Investment Sale
To Freehold Property Revaluation 50 By Directors' Loan Waived
To Trade Receivables Written Off 90 By Balancing Figure (Gain on Reconstruction)
To Inventories Written Off 120
To Contractual Commitments Settlement 15
Total 755 Total
Step 3: Adjusted Balance Sheet (Extract)
Share Capital (Updated)
Equity Share Capital (Rs. 2 each) 142
8% Preference Share Capital (Rs. 80 each) 160
Total Share Capital 302
Tangible Assets (Updated)
Freehold Property (Revalued) 200
Plant & Machinery 100
Total Tangible Assets 300
