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Pvt ltd co has negative reserves - what steps to take

Learner (Digital Assistant) (70 Points)

31 May 2016

Hello all,

The balance sheet of my pvt ltd co. shows a negative reserve. Please suggest which of the following actions to take to transform the company into a healthy company:

1. Increase the authorized share capital to an appropriate value and infuse cash.

2. Do not touch the authorized capital. Instead credit reserve and debit income a/c.

3. Any other.

Thanks in advance for all your help.

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4 Replies

CA Rohit Jain (Practice) (1865 Points)
Replied 31 May 2016

you should first know the reason why negative reserves had appeared in your financials. Is it due to continuous loss making or due to wrong accounting done by the accountant. After ascertaining the reason for negative reserve, one can advise you for next steps that need to be taken to clear balance sheet

1 Like

Learner (Digital Assistant) (70 Points)
Replied 31 May 2016

Originally posted by : CA Rohit Jain
	you should first know the reason why negative reserves had appeared in your financials. Is it due to continuous loss making or due to wrong accounting done by the accountant. After ascertaining the reason for negative reserve, one can advise you for next steps that need to be taken to clear balance sheet

Rohit,

The company has been posting losses year-after-year.

CA Rohit Jain (Practice) (1865 Points)
Replied 31 May 2016

well in that case infusing more capital is not a wise advise

1 Like

Learner (Digital Assistant) (70 Points)
Replied 31 May 2016

Originally posted by : CA Rohit Jain
	well in that case infusing more capital is not a wise advise

Then, should we credit reserves a/c and debit income a/c? This way, the bank balance will rise and we will have to be vigilant about not letting the balance go below a level equal to the amount set aside for reserves.