Yetunde Limited has been making losses in recent years. The directors have proposed a scheme of reorganization effective from October 1 2011. position at 30 September, 2011 is as follows: The statement of financial (i) (ii) (iii) (iv) (v) (vi) Statement of financial position at 30 September, 2011 Acc Depr Cost 100,000 250,000 45,000 395,000 . Freehold Property Plant and Equipment Motor Vehicles Current Assets Inventories Trade receivables Bank Current Liabilities Trade Payables Financed by: Issued and fully paid shares 100,000 7% preference share of N1 400,000 ordinary share of NO.75 Profit/loss 20,000 60,000 15,000 95,000 Additional information: the ordinary shares are to be written down to NO.25 per share and then converted into ordinary share of N1 each 40,000 30,000 10,000 80,000 140,000 Net 80,000 190,000 30,000 300,000 (60,000) 240,000 100,000 300,000 (160,000) 240,000 the preference shareholders are to receive 40,000 ordinary shares of N1 each in exchange for their preference shares dividends on 7% preference shares are in arrears for 2 years. In consideration for waiving their rights to arrears of preference dividends, the preference shareholders have agreed to accept 10,000 ordinary shares of N1 each, fully paid in final settlement the creditors have agreed to take 100,000 new ordinary shares of N1 each, fully paid, in final settlement of amount due to them the balance in the profit and loss is to be written off some items of assets have been revalued and to be included in the account as follows: 100,000 Freehold Property 125,000 Plant and equipment Vehicles Inventories 25,000 36,000 287 (vii) an allowance of N3,500 is to be made for doubtful debts (viii) the ordinary shareholders have agreed to inject additional N90,000 cash by acquiring 120,000 ordinary shares at NO.75 per share fully paid. (ix) reorganization costs amounted to N7,500 Required (a) Prepare capital reduction a/c, share capital account and bank account Prepare statement of financial position of Yetunde Ltd after reduction Identify any 3 reasons for which a company may opt to carry out a capital reduction (b) (c) scheme.