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After a series of trading losses, a company resolved to reduce its capital of 60 000 shares of R1 each to 60 000 shares of
After a series of trading losses, a company resolved to reduce its capital of 60 000 shares of R1 each to 60 000 shares of 25 cents each fully paid. The balance sheet prior to the reduction of capital was as follows: Liabilities Assets R R Capital authorised and issued 60 000 shares of R1 each Share premium a/c Land & building Plant & machinery Stock Debtors Cash Goodwill 80 000 600 80 600 20 250 40 350 40 350 80 700 9 030 19 240 20 470 21 290 670 10 000 Less: Income statement Shareholder's equity Sundry creditors 80 700 Financial Accounting IT / ICG / Page 45 It was resolved to eliminate the share premium account and to allocate the amount then available following the reduction of capital as follows: . . to write off the deficit on the income statement; to write off the value of goodwill; to reduce the value of the plant and machinery by R9 240; to provide for bad debts of R1 500; and to use any balance available to reduce the value of the land and buildings. . Draft the necessary joumal entries and show the balance sheet of the company after the reduction of capital. (15)
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