ACC3122 Financial Reporting 1 Exercise 6-4 Richard Bhd. found itself in financial difficulty and decided to reorganise its affairs. The following is the trial balance extracted from its books as at 30 June x6. RM'000 RM'000 Debits Credits Land 150,000 Ordinary share of RM1 EACH 400,000 Building (cost) 500,000 6% cumulative prfeerence shares of RM1 each 100,000 Equipment (cost) 130,000 8% Debentures 200,000 Intangibles 30,000 Accumulated depreciation Inventories 80,000 Building 170,000 Trade receivables 65,000 Equipment 22,300 Accumulated Loss 200,000 Trade payabale 80,000 Loan from directors 100,000 Bank 82,700 1,155,000 1,155,000 Notes: i. Authorised capital is made up of 500 million ordinary shares of RM1 each and 200 million 6% cumulative preference shares of RM1 each. ii. Preference dividends are in arrears for two years iii. There is contingent liability of RM4 million The scheme agreed to by all parties and sanctioned by the court is as follows: 1. Each ordinary share of RM1 each to be converted into one fully paid ordinary share of 25 sen; and existing ordinary shareholders to subscribe for one ordinary share for every one held at 35 sen per share payablein cash. 2. The 6% cumulative preference shares to be cancelled and in return the preference shareholders to receive one 7% preference share of RM1 each and two 25 sen ordinary shares for every two 6% cumulative preferences shares held. The preference shareholders agreed to waive 65% of the preference dividend in arrears and accept ordinary shares of 25 sen for the balance of the preference dividend in artears. 3. Directors agreed to convert their loan to 5% debentures of nominal value RM105 million issued at a discount of RM5 million. 4. To write off the accumulated loss, intangibles, bad debts of RM5,000,000 and inventories RM10,000,000 5. The following value to be adopted: RM'000 Land 170,000 Building 300,000 Equipment 46,000 I. Cost of reorganisation amounted to RM1.3 million II. Contingent liability materialised and the insurance company indemnified the company to the amount of RM3 million Required: a) Journal entries to record the above transaction b) Statement of financial position of Richard Bhd immediately after the reconstruction. ACC3122 Financial Reporting 1 Exercise 6-4 Richard Bhd. found itself in financial difficulty and decided to reorganise its affairs. The following is the trial balance extracted from its books as at 30 June x6. RM'000 RM'000 Debits Credits Land 150,000 Ordinary share of RM1 EACH 400,000 Building (cost) 500,000 6% cumulative prfeerence shares of RM1 each 100,000 Equipment (cost) 130,000 8% Debentures 200,000 Intangibles 30,000 Accumulated depreciation Inventories 80,000 Building 170,000 Trade receivables 65,000 Equipment 22,300 Accumulated Loss 200,000 Trade payabale 80,000 Loan from directors 100,000 Bank 82,700 1,155,000 1,155,000 Notes: i. Authorised capital is made up of 500 million ordinary shares of RM1 each and 200 million 6% cumulative preference shares of RM1 each. ii. Preference dividends are in arrears for two years iii. There is contingent liability of RM4 million The scheme agreed to by all parties and sanctioned by the court is as follows: 1. Each ordinary share of RM1 each to be converted into one fully paid ordinary share of 25 sen; and existing ordinary shareholders to subscribe for one ordinary share for every one held at 35 sen per share payablein cash. 2. The 6% cumulative preference shares to be cancelled and in return the preference shareholders to receive one 7% preference share of RM1 each and two 25 sen ordinary shares for every two 6% cumulative preferences shares held. The preference shareholders agreed to waive 65% of the preference dividend in arrears and accept ordinary shares of 25 sen for the balance of the preference dividend in artears. 3. Directors agreed to convert their loan to 5% debentures of nominal value RM105 million issued at a discount of RM5 million. 4. To write off the accumulated loss, intangibles, bad debts of RM5,000,000 and inventories RM10,000,000 5. The following value to be adopted: RM'000 Land 170,000 Building 300,000 Equipment 46,000 I. Cost of reorganisation amounted to RM1.3 million II. Contingent liability materialised and the insurance company indemnified the company to the amount of RM3 million Required: a) Journal entries to record the above transaction b) Statement of financial position of Richard Bhd immediately after the reconstruction