QUESTION 3 (HOME WORK)

The following is the draft balance sheet of Diverse Ltd having an authorized capital of N$10,000,000 as on 31st March 2014

	Amount N$(0000)	Amount N$(0000)
I. Equity and Liability 1. Shareholders fund a) Share Capital Equity share of 10 each full paid up b) Reserve and Surplus 2. Noncurrent Liability Long term borrowing Secured against : a) Fixed assets 300 b)Working Capital 100 Unsecured Current Liability II. Assets 1. Non-Current Assets a) Fixed Assets i) Tangible assets Gross block Less: Depreciation b) Investment at Cost (Market N$ 1000 2. Current Asset	250 750 400 600 800 (200)	1000 1000 2000 4000 600 400 3000 4000

Capital Commitment: N$ 7,000,000

The company consists of two divisions:

i. Established division whose gross block was N$2000000 and net block was N$300,000, current assets were N$15,000,000 and working capital was N$ 12,000,000. The entire amount being financed by shareholders funds

ii. New project division to which the remaining fixed assets, current asset and current liability related

The following scheme of Reconstruction was agreed upon

a) Two new companies Sunrise Ltd and Khajana Ltd are to be formed. The authorised capital of Sunrise Ltd is to be N$10,000,000. The authorised capital of Khajana Ltd is to be N$5,000,000

b) Khajna Ltd is to take over investments at N$ 8,000,000 an unsecured loan at balance sheet value. Is to allot equity share of N$ 10 each at par to the member of Diverse Ltd in satisfaction of the amount due under the arrangement

c) Sunrise Ltd is to take over the fixed assets and networking capital of the new project division along with the secured loans and obligation for the capital commitment s for which Diverse Ltd is to continue to stand guarantee at a book value. It is to a lot one dollar equity shares of N$10 each as consideration to Diverse Ltd. Sunrise Ltd made an issue of unsecured convertible debenture of N$500 carrying interest of 15% per annum and having a right to convert into equity shares of N$ 10each at par on 31st March 2019. This issue was made to the members of sunrise Ltd as a right who grabbed the opportunity and subscription in full.

d) Diverse Ltd is to guarantee all liabilities transferred to the 2 companies

e) Diverse Ltd is to b make a bonus issue of equity share in the ratio of one equity share for every equity share held by making use of the revenue reserves.

Assume that the above scheme was duly approved by honourable High Court and that there are other transactions. Ignore the taxation

Required:

i) Pass Journal entries in the books of Diverse Ltd and

ii) Prepare the balance sheet of the three companies after the scheme of arrangement