QUESTION 1

JASAWARIS Bhd has been making losses for many years. The directors and the shareholders of the company have decided that a scheme of capital reduction will be carried out and a new management team will be brought in.

The following is the financial position of the company as at 31 December 2016:

RM

RM

Property, Plant & Equipment

Freehold Land & Building

312,000

Plant & Machinery

54,492

Fixtures & Fittings

21,508

Goodwill

120,000

Investment in quoted shares

54,000

Current Assets:

Stock

240,494

Debtors

141,384

381,878

Current liabilities:

Interest payable on debentures

(25,600)

Trade creditors

(192,494)

Bank overdraft

(105,426)

58,358

620,358

Financed by:

Ordinary shares of RM1

400,000

5% Cumulative Preference Shares of RM1 each

140,000

Profit & Loss

(79,642)

8% Debentures at RM100 each

160,000

620,358

The following scheme has been agreed:

1. The ordinary share is to be reduced to 25 sen per share and the shareholders are to subscribe to a new issue of shares on the basis of 1 for 1 at a price of 40 sen per share.

1. The 5% Cumulative Preference Shares are to be exchanged for a new issue of 70,000 8% cumulative preference shares of RM1 each and 280,000 ordinary shares of 25 sen.

1. Goodwill and the debit balance in the profit and loss account are to be written off.

1. The investment in shares is to be sold at the current market price of RM120,000.

1. 15% of debtors are to be written off as bad debts.

1. The remaining assets are revalued as follows:

RM

Freehold land & building 180,000

Plant & machinery 160,000

Fixtures & Fittings 20,000

Stock 100,000

Required:

1. Prepare the journal entries for this capital reduction scheme.

(14 Marks)

1. Prepare the Statement of Financial Position immediately after the reconstruction

(16 Marks)