QUESTION 2 Balance sheet of Syarikat ABCDEFG before reorganization was shown as below: Balance sheet as at 31 December 2010 Non-current

assets: Freehold land Vehicle Plant and machinery Goodwill Current assets: Debtors Inventory Equity and liability: 2,250,000 ordinary share of RM1.00 (paid to RM0.80) 1,550,000 8% preference share of RM1.00 Accumulated losses Loan from director Creditors Bank overdraft Note: There is a contingent liability of RM90,000. The following scheme of capital reduction was agreed upon: 1. Uncalled capital are to be called up and fully paid. 2. The ordinary shareholders to surrender 2 for 1 at a price of RM1.00 per share. The existing preference shares are to be exchanged to ordinary shares at 1:2. 3. Creditors of land RM120,000 are paid with ordinary shares. 4. Freehold land of RM300,000 (net value) was revaluated at RM430,000, which is taken by the directors as loan payment. The balance for the loan was paid by cash. The balance of freehold land was revalued to RM625,000. 5. The remaining assets are to be restated at the following fair values: Vehicle RM340,000 Plant and machinery RM1,650,900 6. Goodwill and accumulated losses were to be written off. 7. Inventory of RM28,000 and bed debts of RM50,000 were to be written off. 8. Contingent liability are material and paid by cash. 9. The company agreed to issue an ordinary shares 250,000 units at price of RM1.35 each and fully paid. You are required to prepare: a) Journal entries to record the above mentioned information. b) Capital reduction account c) Balance sheet of Syarikat ABCDEFG immediately after the reorganization. Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

580,000 750,000 1,310,000 100,000

325,000 150,000 3,215,000 1,800,000 1,500,000 (1,350,000) 775,000 265,000 175,000 3,215,000

ANSWER a. Journal entries 1. 2. Bank Ordinary share Ordinary share Capital reduction accounts Preference share Ordinary share Capital reduction accounts Creditor Ordinary share Freehold land Capital reduction accounts Loan from director Freehold land Bank Freehold land Capital reduction accounts Capital reduction accounts Vehicle Plant and machinery Capital reduction accounts Capital reduction accounts Goodwill Accumulated losses Capital reduction accounts Inventory Debtor (bed debt) Capital reduction accounts Bank Bank Ordinary share Share premium RM 450,000 1,125,000 1,125,000 1,550,000 775,000 775,000 120,000 120,000 130,000 130,000 775,000 430,000 345,000 345,000 345,000 410,000 410,000 340,900 340,900 1,450,000 100,000 1,350,000 28,000 50,000 90,000 90,000 337,500 250,000 87,500 RM 450,000

3. 4.

5.

6.

7.

8. 9.

Vehicle Goodwill Accumulated losses Inventory Debtor Bank Reserve

Capital Reduction Accounts 410,000 Ordinary share 100,000 Preference share 1,350,000 Freehold land 28,000 Freehold land 50,000 Plant and machinery 90,000 687,900 2,715,900

1,125,000 775,000 130,000 345,000 340,900

2,715,900

Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

Balance sheet as at 31 December 2010 Non-current assets: Freehold land Vehicle Plant and machinery Current assets: Debtors Inventory Bank Equity and liability: Ordinary share Share premium Reserve Creditors

625,000 340,000 1,650,900

275,000 122,000 177,500 3,190,400 2,270,000 87,500 687,900 145,000 3,190,400

Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja