Capital reduction practice Questions Question 1 Doma Ltd which has experienced the trading difficulties decided to reorganize its finances. On 31 December 2014, a final trial balance extracted from the books showed the following GH GHC Share capital, authorized and issue: 150,000 6% cumulative preference share of GHel cach 150.000 200,000 ordinary shares of GHe 1 200.000 Capital surplus account 40,000 Preliminary expenses 7,250 Retained earnings 114,375 Goodwill (cost) 55.000 Trade payables 43,500 Trade receivables 31,200 Bank overdraft 51,000 Leasehold property (at cost) 80.000 Provision for depreciation 30,000 Plant and Machinery (at cost) 210,000 Provision for depreciation 62,500 Inventory in hand 79,175 577,000 577,000 Additional information Approval of the court was obtained for the following scheme for reduction of capital 1. The preference shares to be reduced to GHC0.75 per share 2. The ordinary shares to be reduced to GHC0.125 per share 3. One GH0.125 ordinary share to be issued for GH I of gross preference dividend in arrears, the preference dividend had not been paid for three years 4. The balance on capital surplus account to be utilized 5. Plant and Machinery to be written down to GH75,000 6. The retained earnings balance and all intangible assets to be written off. 7. At the same time as the resolution to reduce the capital was passed, another resolution was approved restoring the total authorized capital to GH350,000 consisting of 150,000 6% cumulative preference shares of GH0.75 each and the balance in ordinary shares of GHc0.125 each. As soon as the above resolution had been passed, 500,000 ordinary shares of no par value were issued for cash payable in full upon application Required a) Show the journal entries necessary to record the above transactions in the company's books b) Prepare the statement of financial position of the company after completion of the scheme