QUESTION 3 The following is the Balance Sheet of Bababu Ltd as at 31 st March 2009.

Assets Goodwill Land and building Plant and machinery Furniture Stock Debtors Cash at bank Preliminary expenses Profit and loss RM 30,000 155,000 305,000 85,000 275,000 65,000 40,000 25,000 1,960,000 2,940,000 Liability 20,000 Equity shares @RM100 12% debenture Outstanding debenture interest Creditors RM 2,000,000 510,000 125,000 305,000

2,940,000

The following scheme of reconstruction is executed: a. Equity shares are reduced by RM95 per share. They are, then consolidated into 10,000 equity shares of RM10 each. b. Debentures holders agree to forego outstanding debenture interest. As a compensation 12% debentures are converted into 14% debenture, the amount remaining RM300,000. c. Creditors are given the option to either accept 50% of their claim in cash in full settlement or to convert their claim into equity shares of RM10 each. Creditors for RM200,000 opt for shares in satisfaction of their claims. d. To make payment to creditors option for cash payment and to augment working capital, the company issues 50,000 equity shares of RM10 at par, the entire amount being payable along with applications. The issue was fully subscribed. e. Land and building are revalued at RM200,000 where as Plant and Machinery is to be written down to RM210,000. A provision amounting to RM5,000 is to be made for doubtful debts. REQUIRED Prepare the journal entry and draft the company balance sheet immediately after the reconstruction.

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

ANSWER Journal entry RM 1,900,000 100,000 100,000 125,000 125,000 300,000 300,000 200,000 200,000 105,000 395,000 500,000 45,000 45,000 95,000 95,000 5,000 5,000 RM 1,900,000

a.

b.

c. d.

e.

Equity share Capital reduction accounts Equity share New Equity Share Outstanding debenture Capital reduction accounts 12% debenture 14% debenture Creditor Equity share Creditor Bank Equity share Land and building Capital reduction accounts Capital reduction accounts Plant and machinery Capital reduction accounts Debtor

Capital Reduction Accounts RM 95,000 Equity share 5,000 Outstanding debenture 1,970,000 Land and building 2,070,000 RM 1,900,000 125,000 45,000 2,070,000

Plant and machinery Debtor Reserve

Balance Sheet Assets Goodwill Land and building Plant and machinery Furniture Stock Debtors Cash at bank Preliminary expenses Profit and loss RM 30,000 200,000 210,000 85,000 275,000 60,000 435,000 25,000 1,960,000 3,280,000 Liability Equity shares Reserve 14% debenture 12% debenture RM 800,000 1,970,000 300,000 210,000

3,280,000

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