On 31 March 20X2, the following was the balance sheet of Quality Yarns Ltd.

The following scheme of capital reduction was sanctioned by the Court and agreed by the shareholders:

(a) Preference shares were to be reduced to 80p each.

(b) Ordinary shares were to be reduced to 25p each.

(c) The capital reserve was to be eliminated.

(d) The reduced shares of both classes were to be consolidated into new ordinary shares of £1 each.

(e) An issue of £300,000 5 per cent debentures at par was to be made to provide fresh working capital.

(f) The sum written off the issued capital of the company and the capital reserve to be used to write off the debit balance of the profit and loss account and to reduce fixed assets by the following amounts:

(g) The bank overdraft was to be paid off out of the proceeds of the debentures which were duly issued and paid in full.

A further resolution was passed to reduce the authorised capital of the company to 1,750,000 ordinary shares of £1 each.

Required:

Prepare journal entries (cash transactions to be journalised) to give effect to the above scheme and draw up the balance sheet of the company after completion of the scheme.

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Fixed assets Goodwill and trade marks as valued Plant and machinery (at cost less depreciation) Furniture and fittings (at cost less depreciation) Current assets Stock Sundry debtors Cash Balance Sheet Less: Current liabilities Sundry creditors Bank overdraft Authorised capital 200,000 6 per cent preference shares of £1 each 3 million ordinary shares of 50p each Issued and fully paid capital 100,000 6 per cent preference shares of £1 each 1,750,000 ordinary shares of 50p each M 33,200 44,400 £ 280,000 320,000 8,400 190,200 74,600 300 265,100 ( 77,600) 200,000 1,500,000 1,700,000 £ 608,400 187,500 795,900 100,000 875,000 975,000