topic capital construction

capital reconstruction and the information of this question is complete .

QUESTION 2 (25 MARKS) KMH Bhd was incorporated as a public limited company in 2016 and listed in Bursa Malaysia. The company was reasonably successful until 2019 but in the last few years trading losses have been incurred due to the Covid-19 pandemic and the board is now considering carrying out a scheme of capital reduction to save the company. The following scheme has been duly passed and the approval of the court obtained. A Statement of Financial Position produced as of 31 December 2021 revealed the following position. Statement of Financial Position as at 31 December 2021 Non-Current Assets Land Plant and machinery Fixture and fittings Investments Goodwill RM 1,800,000 1,290,000 550.000 510,000 130,000 Current Assets Inventories Trade receivables Total Assets 90,000 370,000 4,740,000 2 PAS2313/32134/TEST2 Issued and paid-up capital 2,500,000 ordinary shares 2,000,000 8% cumulative preference shares Retained earnings 2,500,000 1,000,000 (480,000) Non-Current Liabilities 10% debentures 540,000 Current Liabilities Trade payables Cash and cash equivalent Total Equity and Liabilities 700,000 480,000 4,740,000 Note: preference dividends have been in arrears for two years. Additional information: 1. Ordinary shares are reduced by RM0.40 each whilst the preference shares are reduced to RM0.30 each. Both shares are then converted into new ordinary shares of RM1 each. 2. The preference shareholders agreed to waive 50% of the dividends to them. The balance was settled by issuing one unit of ordinary shares for every RM1 preference dividend in arrears. 3. The debenture holders agreed to take a piece of land costing RM500,000 at an agreed value of RM800,000 and paid the balance to the company after settling the amount due to them. The remaining land was revalued to RM2,000,000. 4. Investments are sold at a profit of RM170,000 5. The accumulated losses and all intangible assets are to be written off. 6. The following are the information related to the new value of assets: i. Fixtures and fittings decreased to RM420,000 ii. Plant and machinery are RM700,000 iii. Inventories of RM10,000 to be written off as obsolete iv. A debt of RM50,000 of its trade receivables was uncollectible 7. The company had paid RM4,000 for legal expenses Required: a. Prepare the relevant journal entries to record the above transactions. (12 marks) b. Prepare the Statement of Financial Position as at 1 January 2022 immediately after the reconstruction scheme has been undertaken by KMH Bhd. (8 marks) C. Briefly explain the reasons why the shareholders agreed to the reduction in the nominal value of their shares. (5 marks) QUESTION 2 (25 MARKS) KMH Bhd was incorporated as a public limited company in 2016 and listed in Bursa Malaysia. The company was reasonably successful until 2019 but in the last few years trading losses have been incurred due to the Covid-19 pandemic and the board is now considering carrying out a scheme of capital reduction to save the company. The following scheme has been duly passed and the approval of the court obtained. A Statement of Financial Position produced as of 31 December 2021 revealed the following position. Statement of Financial Position as at 31 December 2021 Non-Current Assets Land Plant and machinery Fixture and fittings Investments Goodwill RM 1,800,000 1,290,000 550,000 510,000 130,000 Current Assets Inventories Trade receivables Total Assets 90,000 370,000 4,740,000 2 PAS2313/32134/TEST2 Issued and paid-up capital 2,500,000 ordinary shares 2,000,000 8% cumulative preference shares Retained earnings 2,500,000 1,000,000 (480,000) Non-Current Liabilities 10% debentures 540,000 Current Liabilities Trade payables Cash and cash equivalent Total Equity and Liabilities 700,000 480,000 4,740,000 Note: preference dividends have been in arrears for two years. Additional information: 1. Ordinary shares are reduced by RM0.40 each whilst the preference shares are reduced to RM0.30 each. Both shares are then converted into new ordinary shares of RM1 each. 2. The preference shareholders agreed to waive 50% of the dividends to them. The balance was settled by issuing one unit of ordinary shares for every RM1 preference dividend in arrears. 3 The debenture holders agreed to take a piece of land costing RM500,000 at an agreed value of RM800,000 and paid the balance to the company after settling the amount due to them. The remaining land was revalued to RM2,000,000. 4. Investments are sold at a profit of RM170,000 5. The accumulated losses and all intangible assets are to be written off. 6. The following are the information related to the new value of assets: i. Fixtures and fittings decreased to RM420,000 ii. Plant and machinery are RM700,000 iii. Inventories of RM10,000 to be written off as obsolete iv. A debt of RM50,000 of its trade receivables was uncollectible 7. The company had paid RM4,000 for legal expenses Required: a. Prepare the relevant journal entries to record the above transactions. (12 marks) b. Prepare the Statement of Financial Position as at 1 January 2022 immediately after the reconstruction scheme has been undertaken by KMH Bhd. (8 marks) C. Briefly explain the reasons why the shareholders agreed to the reduction in the nominal value of their shares