Question
Tech Innovations Ltd. Initial Financial Position (31 December 2023): Share capital, authorised and issued: 150,000 7% cumulative preference shares of $1 each: $150,000 600,000 ordinary
Tech Innovations Ltd.
Initial Financial Position (31 December 2023):
Share capital, authorised and issued:
150,000 7% cumulative preference shares of $1 each: $150,000
600,000 ordinary shares of $1 each: $600,000
Share premium account: $120,000
Retained profits: $180,000
Preliminary expenses: $25,000
Goodwill (at cost): $75,000
Trade accounts payable: $85,000
Accounts receivable: $70,000
Bank overdraft: $55,000
Leased property (at cost): $180,000 (provision for depreciation: $50,000)
Plant and machinery (at cost): $400,000 (provision for depreciation: $120,000)
Inventory: $200,000
Total Assets: $1,755,000
Total Liabilities: $1,755,000
Approval of the Court was obtained for the following scheme for the reduction of capital:
The preference shares to be reduced to $0.40 per share.
The ordinary shares to be reduced to $0.50 per share.
One $0.15 ordinary share to be issued for each $1 of gross preference dividend arrears; the preference dividend had not been paid for three years.
The balance on the share premium account to be utilised.
Plant and machinery to be written down to $250,000.
The retained profits, and all intangible assets, to be written off.
Requirement:
(a) Show the journal entries necessary to record the above transactions in the company’s books.
(b) Prepare a balance sheet of the company after completion of the scheme.
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