18 Illustration 10 S.P. Construction Co. finds itself in financial difficulty. The following is the summarized balance sheet on 31 December 2012: Liabilities Assets Share capital Land 1,56,000 20,000 Equity Shares of Building (net) 27,246 10 each fully paid 2,00,000 Equipment 10,754 5% Cum. Pref. Shares of Goodwill 60,000 * 10 each fully paid 70,000 Investments (Quoted) in shares 27,000 8% Debentures 80,000 Inventory 1,20,247 Loan from Directors 16,000 Trade receivables 70,692 Trade payables 96,247 Profit & Loss Account 39,821 Bank Overdrafts 36,713 Interest Payable on Debentures 12,800 5,11,760 5.11,760 The authorised capital of the company is 20,000 Equity Shares of 10 each and 10,000 5% Cum. Preference Shares of 10 each. During a meeting of shareholders and directors, it was decided to carry out a scheme of intemal reconstruction. The following scheme has been agreed (1) The equity shareholders are to accept reduction of 77.50 per share. And each equity share is to be redesignated as a share of 2.50 each. (2) The equity shareholders are to subscribe for a new share on the basis of 1 for 1 at a price of 3 per share. (3) The existing 7,000 Preference Shares are to be exchanged for a new issue of 3,500 8% Cumulative Preference Shares of 10 each and 14,000 Equity Shares of 72.50 each. (4) The Debenture holders are to accept 2,000 Equity Shares of 2.50 each in lieu interest payable. The interest rate is to be increased to 9 %%. Further 9,000 of this 9%% Debentures are to be issued and taken up by the existing holders at 90 for 100. (5) 76,000 of directors' loan is to be credited. The balance is to be settled by issue of 1,000 Equity Shares of 2.50 each. (6) Goodwill and the profit and loss account balance are to be written off. (7) The investment in shares is to be sold at current market value of 60,000 (8) The bank overdraft is to be repaid. (9) 46,000 is to be paid to trade payables now and balance at quarterly intervals. (10) 10% of the trade receivables are to be written off. (11) The remaining assets were professionally valued and should be included in the books of account as follows: Land 90,000 Building 80,000 Equipment 10,000 Inventory 50,000 (12) It is expected that due to changed condition and new management operating profit will be earned at the rate of 750,000 p.a. after depreciation but before interest and tax found it daw tablillado