IX. External Reconstruction a 29 Illustration - 37 A Ltd. is engaged in the manufacture of Dand N. It has two wholly owned subsidiaries. B Ltd. and C Ltd. which have never traded. The draft financial statement of parent company shows: Balance Sheet as on 31st March, 2009 Liabilities Rs. Assets Rs. Share Capital 40,000 Fixed Assets 21,400 Reserves and surplus 48,800 Investment in B Ltd. 10,000 Secured loan 12,000 Investment in C Ltd. 10,000 Sundry creditors 90,000 Current assets Owing to subsidiaries 20,000 Stock and Work-in-progress 43,400 Proposed dividend 4,000 Sundry debtors 9,360 Cash at bank 36,400 2,14,800 2,14,800 Profit and Loss Account for the year ended 31st March, 2009 Rs. Net Profit 37,200 Dividend Paid Transfer to Reserve 33,200 The two managing directors Mr. Kali and Mr. Prem who own 40% and 60% respectively of the Share capital of A Ltd. will become individually concerned with B Ltd. and C Ltd. respectively in order to allow them to develop their own interests. They have agreed to a scheme of reconstruction whereby the respective trade and assets apart from cash at bank and liabilities will be transferred to the two subsidiaries. The resulting inter-company debts will be waived and A Ltd. will be placed into liquidation. The liquidator will retain Rs. 5,200 of the cash at bank to meet the costs of liquidation and reorganisation and pay dividend. He will distribute the remaining cash at bank and shares in two subsidiaries to A Ltd's shareholders Mr. Kali and Mr. Prem. As far as his cash distribution pool permits, each director will then purchase, at net assets value, those shares in his own company distributed by the liquidator to his former colleague. It has been agreed that B Ltd. will receive a first tranch of the assets of A Ltd. comprising stock and work in progress of Rs. 15,000. CLtd. will take over the liability for the Secured Loan. The remainder of the net assets will be transferred to the subsidiary companies in the ratio of 75% to BLtd. and 25% of C Ltd. with the group freehold property, included in the Fixed assets at Rs. 15,000 being revalued at the open market value of Rs. 42,000 and being transferred to C Ltd.as a part of its share. You are required to: a. Produce the proforma balance sheets of the two former subsidiary immediately after reorganisation b. Calculate the final share holdings in each of the two companies. 4,000