internal reconstruction-surrender of shares

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CA Vijeta Verma (Querist)

26 April 2010 dear sir/ma'am
wanted to ask a query from surrender of shares(internal reconstruction)

situation1
creditors(=72000) claim shall be reduced to 50%, it is to settled by the issue of equity shares of rs10 each out of the shares surrendered(=500000)

situation2
Creditors(=300000) agree to reduce their claim by one-fifth in consideration of getting shares of rs35000 out of the shares surrendered(=270000)
Kindly give entries in both situation..

In the book the 1st entry is creditors a/c dr to cap reconstruction 72000
Whereas 2nd entry is creditors a/c dr to cap reconstruction60000

Here confusion is, in first entry we have credited capital reconstruction a/c with rs72000 i.e total amt but in 2nd situation its only the reduced amount?why so?

DEEPIKA GOEL

DEEPIKA GOEL (Expert)

27 April 2010 In each situation, the language of the question is different, so we have to answer accordingly. In Situation 1, the creditors reduced balance has been given to us and its written in question that the reduced amount is equal to 50% of outstanding creditors before the internal reconstruction. So in this situation, the amount of creditors ready to sacrifice Rs. 72,000 provided the shares has been issued against it.

In situtation 2, 1/5 th of creditors outstanding are agreed to sacrifice their claim provided the shares has been issued to them. And the amount comes out to Rs. 300000*1/5= Rs. 60000.

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CA Vijeta Verma

CA Vijeta Verma (Querist)

27 April 2010 Thankyou for ms deepika goel your reply…cant the 1st entry be
Creditors a/c dr72000 to capital reconstruction36000 to equity share surrendered 36000

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