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CleanLife Technologies Ltd. Initial Financial Position (31 December 2023): Share capital, authorised and issued: 170,000 6% cumulative preference shares of $1 each: $170,000 500,000 ordinary
CleanLife Technologies Ltd.
Initial Financial Position (31 December 2023):
- Share capital, authorised and issued:
- 170,000 6% cumulative preference shares of $1 each: $170,000
- 500,000 ordinary shares of $1 each: $500,000
- Share premium account: $120,000
- Retained profits: $160,000
- Preliminary expenses: $20,000
- Goodwill (at cost): $80,000
- Trade accounts payable: $70,000
- Accounts receivable: $60,000
- Bank overdraft: $50,000
- Leased property (at cost): $170,000 (provision for depreciation: $50,000)
- Plant and machinery (at cost): $360,000 (provision for depreciation: $100,000)
- Inventory: $170,000
Total Assets: $1,760,000
Total Liabilities: $1,760,000
Approval of the Court was obtained for the following scheme for the reduction of capital:
- The preference shares to be reduced to $0.60 per share.
- The ordinary shares to be reduced to $0.40 per share.
- One $0.25 ordinary share to be issued for each $1 of gross preference dividend arrears; the preference dividend had not been paid for three years.
- The balance on the share premium account to be utilised.
- Plant and machinery to be written down to $250,000.
- 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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