Question 2 (30 Marks)

The financial position of Sungai Long Bhd as at 31 December 2019 is as follows:

The company had formulated an approved scheme of internal scheme of reconstruction to

take effect on 1st January 2020 which contained the following provisions:

i) The ordinary shares to be reduced to RM0.50 per share and then to consolidate the reduced ordinary shares into RM1 ordinary shares fully paid. The existing ordinary shareholders are to subscribe for an additional 100,000 ordinary at RM1 each.

ii) The creditors have agreed to accept 100,000 new ordinary shares of RM1 each in part satisfaction of the sums due to them.

iii) The preference shareholders are to receive 50,000 new ordinary shares of RM1 each in exchange for their preference share.

iv) The 7% cumulative preference dividends are two years in arrears. In consideration for waiving their rights to arrears of preference dividend, the preference shareholders have agreed to accept 10,000 new ordinary shares RM1 each as part settlement and with the balance of the preference dividend to be paid in full.

v) To write off the accumulated loss.

vi) The directors have agreed to convert the amount due to them to ordinary shares of RM1 each.

vii) The bank overdraft to be repaid in full.

viii)The assets below are to be revalued at: RM

Freehold premises 184,000

Plant and equipment 105,000

Vehicles 25,000

Inventories 36,000 ix) A provision for doubtful debts to be raised at RM1,000.

x) Cost of reconstruction amounted to RM15,000

Required:

a) Prepare the capital reduction account, ordinary share capital account, and bank account to reflect the above reorganization. (22 marks)

b) Prepare the statement of the financial position of Sungai Long Bhd immediately after the completion of the capital reduction scheme. (8 marks)