Financial management e-book

Many many many Tanks Sanjay Bhaiya...

You always come with something very useful..

Thanks for sharing....

i have some doubts in accounting....i'm ipcc student i attached the file regarding my doubt please clarify. its from internal reconstruction...im not able to understand that journal entry.

Thanks .. Really helpful.

hello sanjay sir,

would u pls give me ur email id. i hv a problem in accounts.

Originally posted by : HarishVj
	i have some doubts in accounting....i'm ipcc student i attached the file regarding my doubt please clarify. its from internal reconstruction...im not able to understand that journal entry.

Total No of 7% Preference shares with Face value Rs 50=12000(given in the balance sheet) , so this  amount is debited Rs6,00,000(12000*5). so as to cancel the preference share capital

For each Preference share as per the scheme the consideration is as follows which will be Credited

        1 )4 preference shares of Rs 10 each so the company will give Rs 480,000 (12000*4*Rs10)

         2)6 Equity Shares of Rs2.5 each so the company will give Rs180,000 (12000*6*2.5)

The balanceing amount will be adjusted against the Reconstruction A/c i.e Rs 60,000(600,000-480,000-180,000)

Note-There will be no entry of the cancellation of arrears of dividend..since there is no entry recorded in the books.

1. To Cancel 7% PSC --> 7% PSC debited by Rs. 6,00,000

2. As mentioned in Question, you need to issue 4 new PS + 6 new ES for each PS.

3. No. of 5% PS to be issued : 12,000 * 4 = 48,000

4. No. of ES to be issued : 12,000 * 6 = 72,000

5. 5% PSC will be Rs. 4,80,000 (i.e 48,000 * 10) and ESC will be Rs. 1,80,000 (i.e. 72,000 * 2.5) 

6. Total 7% PSC Cancelled is Rs. 6,00,000 and issued amount is Rs. 6,60,000 (i.e. 4,80,000 + 1,80,000), so extra amount will be debited to Capital Reconstruction A/c (i.e. 60,000).

Hence, Jounal Entry will be:

7% PSC                  Dr. 6,00,000

Capital Reduction a/c    Dr.   60,000

                    To 5% PSC               4,80,000

                    To ESC                     1,80,000

Note: No Entry is required for cancellation of Preference Dividend in Arrears.

Thanks Mr Sanjay for your valuable support to CS students.

Uma