CAPITAL REDUCTION/RECONSTRUCTION
Malaysia Accounting Standard
Required: question a,b,c
QUESTION 4 (20 MARKS) APRIL 2019 LSY Bhd has recorded an accumulated loss of RM26,600. In response to this, the company immediately hired a financial consultant to deal with the company's current situation. The following was the statement of financial position of LSY Bhd. Statement of Financial Position as at 31 July 2019 RM RM Non-current Assets Machinery Other non-current assets 30,000 20,000 50,000 Current Assets Inventory Trade receivables Cash and cash equivalent Total Assets 53,200 42.800 1,000 97,000 147,000 Equity and Reserves Ordinary shares of RMI each Retained earnings 140,000 (26,600) 113,400 Current Liabilities Trade payables Total Equity and Liabilities 33,600 147.000 The directors wish to implement a capital reconstruction scheme on 31 July 2019. The following proposed reduction scheme has been approved by the shareholders and the relevant authorities: 1. 2. 3. The directors believe the existing machinery should be scrapped as its output is increasingly unreliable. Its value as scrap metal is RM2,000. Bank charges of RM100 have not been accounted for RM1,200 of raw materials have become damp in storage and need to be disposed of for proceeds of RM200. A provision for doubtful debts of 5% is to be created. A legal case between LSY Bhd and a supplier has just been decided in the supplier's favor. The cost to the company is expected to be RM12,160. 4. 5. Required: a) Calculate the reduction in the total ordinary share capital of the company when the scheme of reconstruction is implemented. b) Prepare the Statement of Financial Position as at 1 August 2019 after the scheme of capital reconstruction has been implemented. c) En. Muhammad owns 100 shares in LSY Bhd. He is unhappy about the capital reconstruction scheme and says that his investment has lost value unfairly. Briefly explain by giving reasons whether En. Muhammad is right to be unhappy about the capital reconstruction scheme. QUESTION 4 (20 MARKS) APRIL 2019 LSY Bhd has recorded an accumulated loss of RM26,600. In response to this, the company immediately hired a financial consultant to deal with the company's current situation. The following was the statement of financial position of LSY Bhd. Statement of Financial Position as at 31 July 2019 RM RM Non-current Assets Machinery Other non-current assets 30,000 20,000 50,000 Current Assets Inventory Trade receivables Cash and cash equivalent Total Assets 53,200 42.800 1,000 97,000 147,000 Equity and Reserves Ordinary shares of RMI each Retained earnings 140,000 (26,600) 113,400 Current Liabilities Trade payables Total Equity and Liabilities 33,600 147.000 The directors wish to implement a capital reconstruction scheme on 31 July 2019. The following proposed reduction scheme has been approved by the shareholders and the relevant authorities: 1. 2. 3. The directors believe the existing machinery should be scrapped as its output is increasingly unreliable. Its value as scrap metal is RM2,000. Bank charges of RM100 have not been accounted for RM1,200 of raw materials have become damp in storage and need to be disposed of for proceeds of RM200. A provision for doubtful debts of 5% is to be created. A legal case between LSY Bhd and a supplier has just been decided in the supplier's favor. The cost to the company is expected to be RM12,160. 4. 5. Required: a) Calculate the reduction in the total ordinary share capital of the company when the scheme of reconstruction is implemented. b) Prepare the Statement of Financial Position as at 1 August 2019 after the scheme of capital reconstruction has been implemented. c) En. Muhammad owns 100 shares in LSY Bhd. He is unhappy about the capital reconstruction scheme and says that his investment has lost value unfairly. Briefly explain by giving reasons whether En. Muhammad is right to be unhappy about the capital reconstruction scheme
