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:

1. The preference shares to be reduced to $0.60 per share.
2. The ordinary shares to be reduced to $0.40 per share.
3. 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.
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.