QUESTION 4 (30 Marks) Suite Hospitality Sdn Bhd operates three hotels in Kuala Lumpur, Penang and Ipoh, Suite Hospitality has been incurring losses over the past 5 years. The following is its summarised statement of financial position as at 31 December 2019. Statement of Financial Position as at 31 December 2019 Building Furniture and Fittings Equipment Motor Vehicles Intabgible Assets RM 200,000 550.000 430,000 440,000 80,000 Currents Assets Food & Beverage Inventory Trade Receivables 200.000 65.000 1,965,000 Issued and paid up capital 12% Preference Shares of RM1 each 1,400,000 Ordinary Shares of RM1 each 100,000 1,400,000 1,500,000 (195,000) 1,305,000 200,000 Accumulated losses 10% Debentures Current Liabilities Loan from Directors Trade Payables Bank Overdraft 170,000 190,000 100,000 1,965,000 The hotel chain had a disappointing year in 2019 and has been in negotiations with its major creditors and landlords to find a way for the company to continue. The directors proposed an internal reorganisation and the scheme has been agreed to by all parties and sanctioned by the court. The scheme is as follows: i) Ordinary shares of RM1 each to be converted into one fully paid ordinary shares of 75 sen. The existing ordinary shareholders have agreed to subscribe for 1 ordinary shares for every 5 held at 75sen payable in cash. ii) To write off the following RM Accumulated Losses 195,000 Intangible Assets 80,000 Furniture and Fittings 20,000 Equipment 30.000 Motor Vehicles 11.000 Food & Beverage Inventory 5,000 Trade Receivables (Bad Debts) 65,000 iii) Assets were revalued to the following amounts: RM Building 290,000 iv) The 10% debentures are to be converted into 12% preference shares of RM1.The bank overdraft is to be repaid in full. v) The directors have agreed to convert their loan into 12% preference shares vi) There is a contingent liability of RM15,000 relating to a legal suit against the company which has not been recorded. The contingent liability has materialised and is to be paid. vii) Cost of reconstruction amounted to RM19,000 Required: a) Prepare the capital reduction account to reflect the reorganization. (13 marks) b) Prepare the revised balance sheet of Suite Hospitality Sdn Bhd as at 1 January 2020 giving effect to the proposed scheme for reorganization. (17 marks)