internal reconstruction

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CA Abhishek Singh (Querist)

01 April 2010 in bal sheet creditor is rs.180000

adj: creditors agreed to waive their 30% rights and company paid rs.30000 of shares in part for renewing their liability.

what will be the JOURNAL ENTRY

my id abhipcc@rediffmail.com

shakuntala chhangani

shakuntala chhangani (Expert)

01 April 2010 Hi Abhishek, what i understand here is that creditors waive 30% of their claims (i.e.30% of Rs. 1,80,000 i.e. Rs. 54,000)in exchange of there getting shares worth Rs. 30,000 in the co. Hence it is profit for the co. and the entry will be :
Creditors A/c Dr. 54,000
To Equity Share Capital A/c 30,000
To Capital Reduction A/c 24,000
Regards, CA Shakuntala Chhangani

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)

01 April 2010 I YHINK--

Creditors A/c Dr. 54,000
To Equity Share Capital A/c 30,000
To Sundry Creditors w/o A/c 24,000

M Prabhakar Menon

M Prabhakar Menon (Expert)

01 April 2010 Mr Abhishek u have disclosed only a part of the reconstruction scheme what is the effect on capital reduction is not known Normally any reconstruction scheme involves sacrifice by all stakeholders of the company and the net figure is reflected in the Capital Reduction A/c of the Co.The entry suggested by Ms Shakutala is correct in the limited info given.