Abusua Ltd. has been trading profitably for several years but for the past four years its operations have resulted in losses. The board of directors has decided to restructure the company.

The Statement of Financial Position as at 30 September 2016

Non- current assets	GH¢000	GH¢000
Freehold land and buildings		3,788
Plant and equipment		7,020
Furniture and fixtures		3,080
Investment		2,300

Deferred development expenditure		7,050
Patent rights		4,200
		27,438
Current assets Inventories	3,510
Trade receivables	1,600
Cash	428
	5,538
Current liabilities Bank loan	5,360
Trade payables	4,650
Sundry creditors	1,060
	11,070	(5,532)
Net current liabilities 22% Debentures		(7,875)
Financed by:		14,031
Share capital		17,625
Capital surplus		2,250
Income surplus		(5,844)
		14,031

You have been provided with the following additional information. i) Abusua Ltd’s share capital consists of                       GH¢000

Ordinary shares                                                      13,500

20% Cumulative Preference shares                         4,125

ii) No dividend was declared on the Preference shares for the year ended 30 September, 2016. iii) The following assets have net realizable values as indicated below:

GH¢000

Freehold land and buildings                                        4,005

Plant and equipment                                                    3,750

Furniture and fixtures                                                  2,800

iv) The investment in Abusua Ltd. is 55% holding in Obi Ltd. An offer of GH¢ 1,350,000 has been made for it and it has been accepted by the directors.

v) Following further feasibility study carried out on the project which gave rise to the deferred development expenditure, the directors have decided to discontinue the project. The project is not patented.

vi) The directors have decided to sell the patent rights for a net realizable value of GH¢

1,800,000.

vii) Inventories were written down by GH¢ 2,232,000.

viii) The 22% debentures are secured on the freehold land and buildings.

ix) The bank has a fixed and floating charge over the assets in respect of the loan.

x) It is considered that a proposed reconstruction of the company should result in net profit after tax of GH¢1,500,000 in the year ending 30 September, 2017 and GH¢1,800,000 or more in each of the years thereafter.

xi) The company will require a ratio of accounts receivable and cash to current liabilities of

0.80:1 in future to trade satisfactory.

Required:

As a Director of Finance of Abusua Ltd, recommend a scheme of reconstruction for consideration by the board of directors of the company and prepare a summarized statement of a financial position