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 RM 1 400,000

5% Cumulative Preference Shares of RM 1 each 140,000

Profit & Loss (79,642)

8% Debentures at RM 100 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.

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

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

4.The investment in shares is to be sold at the current market price of RM 120,000.

5.15% of debtors are to be written off as bad debts.

6.The remaining assets are revalued as follows:

RM

Freehold land & building180,000

Plant & machinery160,000

Fixtures & Fittings20,000

Stock 100,000

Required:

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

(14 Marks)

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

(16 Marks)