Question Capital Reduction for Putra Bhd

a) Show relevant journal entries to record the transactions.

b) Prepare the Capital Reduction Account.

c) Explain two circumstances in which a company may initiate a scheme of capital reduction.

Question I The Statement of Financial Position of Putra Berhad as at 31 March 2015 was as follows: Non-current Assets Property, Plant and Equipment RM 585,000 55,000 130,000 35,00 805,000 RM Patents Current Assets Trade Receivables 485,000 Prepaid Advertising Share Capital and Reserves 750,000 Ordinary Shares of RM1 each 400,000 1 5% Cumulative Preference Shares of RM1 each Accumulated Losses 750,000 400,000 480,000 670,000 Non-current Liabilities 196 Debentures (secured on freehold property) 375,000 Current Liabilities Accrued Interest Bank Overdraft Trade Payables Directors' Loan 170,000 300,000 140,000 665,000 Notes: The preference share dividends were three years in arrears The Court approved a scheme of re-organisation submited by the debenture holders and it had agreed by other interested parties that the re-organisation was to take effect on 1 April 2015 whereby: i. ii. ii. The debenture holders were to have their accrued interest paid in cash, to take over The ordinary and preference shares were to be written down to 80 sen and 20 sen each, respectively. Each class of shares would then be converted into shares of RM1 each. Of the preference share dividends in arrears, three quarters were to be waived and ordinary shares were to be allocated at par for the remaining one quarter freehold property (book value RM75,000) at a value of RM100,000 in part payment of their holdings and to provide additional cash capital of RM200,000 secured by a 10% iv. Patents, goodwill and prepaid advertising were to be written off. In addition, RM45,000 was to be written off for inventories, RM55,000 was to be provided for bad debts, and the remaining freehold property was to be revalued at RM495,000. V. The accumulated losses were to be written of. vi. All of the investments were to be sold for RM80,000 vii. The directors agreed to accept settlement of their loans as to 80% thereof by allotment of ordinary shares at par, 5% in cash and the remaining balance is waived. Question I The Statement of Financial Position of Putra Berhad as at 31 March 2015 was as follows: Non-current Assets Property, Plant and Equipment RM 585,000 55,000 130,000 35,00 805,000 RM Patents Current Assets Trade Receivables 485,000 Prepaid Advertising Share Capital and Reserves 750,000 Ordinary Shares of RM1 each 400,000 1 5% Cumulative Preference Shares of RM1 each Accumulated Losses 750,000 400,000 480,000 670,000 Non-current Liabilities 196 Debentures (secured on freehold property) 375,000 Current Liabilities Accrued Interest Bank Overdraft Trade Payables Directors' Loan 170,000 300,000 140,000 665,000 Notes: The preference share dividends were three years in arrears The Court approved a scheme of re-organisation submited by the debenture holders and it had agreed by other interested parties that the re-organisation was to take effect on 1 April 2015 whereby: i. ii. ii. The debenture holders were to have their accrued interest paid in cash, to take over The ordinary and preference shares were to be written down to 80 sen and 20 sen each, respectively. Each class of shares would then be converted into shares of RM1 each. Of the preference share dividends in arrears, three quarters were to be waived and ordinary shares were to be allocated at par for the remaining one quarter freehold property (book value RM75,000) at a value of RM100,000 in part payment of their holdings and to provide additional cash capital of RM200,000 secured by a 10% iv. Patents, goodwill and prepaid advertising were to be written off. In addition, RM45,000 was to be written off for inventories, RM55,000 was to be provided for bad debts, and the remaining freehold property was to be revalued at RM495,000. V. The accumulated losses were to be written of. vi. All of the investments were to be sold for RM80,000 vii. The directors agreed to accept settlement of their loans as to 80% thereof by allotment of ordinary shares at par, 5% in cash and the remaining balance is waived