Need help in internal reconstruction

 

What should be Accounting Entry if High Court has ordered to reconstruct Balance Sheet of a Company?
 
 
 
R Ltd. holds 21.600 Shares in Q Ltd. . This represents 15% of the share capital of that company . Q Ltd. is not a quoted company . The average net profit (after tax) of the company is Rs.2,50,000 . The shares would be valued based on 12% Capitalization rate .
 
 
 
[Note : In Balance Sheet of R Ltd. ->> Assets Side : Investment in Share in Q Ltd. at cost Rs.3,24,000]
Replies (3)
this is from JkShah text book right
No From CA. Praveen Sharma's Book.

calculation of market value of investment

Net profit after Tax 250000

capitalisation of net profit 250000*100/12 (ie.12%) =2083333 *15%=312500

 

and ultimatly in the balance sheet  the investment value i have written is 312500

 

this is the working i have ...do not depend understand or confirm from somewhere

because i do not understand the working note (capitalization part.)

 

I am sorry ...if this is not very helpful .

 

and in the journal entries section

the entry is

Capital reduction a/c   Dr11500 ---> (324000-312500)

     To Investments A/c            11500

the value of the investment has become less,therefore it is a loss and Cap Red A/c is Debited and investment account is creadited

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