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Internal Reconstruction

Satvir Singh (Newly minted CA) (1733 Points)

02 August 2010

My Queries:

1) How will we treat credit balance in Capital Reduction/Reconstruction account?

2) Should Patents & Copyrights be written off?

3) If not given in question, should we provide for intt. on debentures, pref. shares or not?

THANKS IN ADVANCE

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9 Replies

Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 02 August 2010

Dear Singh,

1-- If any Credit Balance is left in the Capital Reduction A/c, it should be transferred to Capital Reserve A/c.

2-- Patents/ Copyrights/ any intangible asset will be written off only to the extent of Over valuation done.

3-- If specified in question, then only provide..

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(Guest)

Dear Faiz

Is it possible to have a Cr. Bal in capital reduction A/c ?

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Faiz Ahmed ( Article Trainee) (1731 Points)
Replied 02 August 2010

Originally posted by : dinesh
	Dear Faiz Is it possible to have a Cr. Bal in capital reduction A/c ?

At times it can come , depending upon Internal Reconstructions carried out. kindly see CA(PCC) Nov,2007 paper to get an idea about various adjustments on it.

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Satvir Singh (Newly minted CA) (1733 Points)
Replied 03 August 2010

If transferred to Capital Reserve, it will have debit balance. So, will it be shown on assets side????? Is it possible?

In some questions, they ask to bring in fresh equity to make up for that difference.

Rineesh Raghavan (MD) (108 Points)
Replied 03 August 2010

Hi Singh

It won't have debit balance. You'll transfer only to the extent of balance in Capital Reduction A/c. None of the court approvals can be obtained if the internal reconstructions are such that write downs by liability, capital are inadequate to cover up the losses.

Just visualize a Creditor to whom Rs.100 is payable (Credit Balance). Will you pay more than Rs.100? No. The same way, Capital Reduction will be transferred to Cap Res only to the extent of balance available.

Therefore, never will Capital Reserve on the Debit Side.

Rineesh

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