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BioTech Ltd. Initial Financial Position (31 December 2023): Share capital, authorised and issued: 150,000 7% cumulative preference shares of $1 each: $150,000 600,000 ordinary shares

BioTech Ltd.
Initial Financial Position (31 December 2023):

  • Share capital, authorised and issued:
  • 150,000 7% cumulative preference shares of $1 each: $150,000
  • 600,000 ordinary shares of $1 each: $600,000
  • Share premium account: $120,000
  • Retained profits: $180,000
  • Preliminary expenses: $25,000
  • Goodwill (at cost): $75,000
  • Trade accounts payable: $85,000
  • Accounts receivable: $70,000
  • Bank overdraft: $55,000
  • Leased property (at cost): $180,000 (provision for depreciation: $50,000)
  • Plant and machinery (at cost): $400,000 (provision for depreciation: $120,000)
  • Inventory: $200,000

Total Assets: $1,755,000
Total Liabilities: $1,755,000
Approval of the Court was obtained for the following scheme for the reduction of capital:

  1. The preference shares to be reduced to $0.40 per share.
  2. The ordinary shares to be reduced to $0.50 per share.
  3. One $0.15 ordinary share to be issued for each $1 of gross preference dividend arrears; the preference dividend had not been paid for three years.
  4. The balance on the share premium account to be utilised.
  5. Plant and machinery to be written down to $250,000.
  6. The retained profits, and all intangible assets, to be written off.

Requirement:
(a) Show the journal entries necessary to record the above transactions in the company’s books.
(b) Prepare a balance sheet of the company after completion of the scheme.

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