Q.

1 Vijay Ltd, Ahmedabad shows following balance sheet as on 31st March

2025.
[20 Marks]
Balance Sheet
Liabilities Amount Assets Amount
Equity Share Capital 1,00,000 Plant & Machinery 1,00,000
10,000 Shares @ ₹10 each Investment 80,000
6% Preference Shares of 60,000 Sundry Debtors 20,000
₹100 each Stock 20,000
Reserves 40,000 Bills Receivable 10,000
Sundry Creditors 35,000 Goodwill 10,000
Bills Payable 15,000 Profit & Loss A/c 10,000
2,50,000 2,50,000

Company gets the approval from the court regarding scheme of capital
reduction on following terms.

a) Equity share of ₹ 10 to be reduced to ₹ 5 fully paid up shares.

b) 6% preference shares of ₹100 each are to be converted into 8%
preference shares.
c) Plant and Machinery should be reduced by 20%.
d) Goodwill and Profit & Loss Account is to be written off.
e) Investment are to be valued at 110%.

Pass Journal Entries in the books of Ashirwad Ltd. Also prepare Capital
Reduction Account and Balance sheet after reconstruction.
Q. 1 (Solution)
In the books of Vijay Ltd, Ahmedabad
Journal Entries
(2 Marks for each correct entry = 10 marks)
Particulars Amount Amount
1. Equity Share Capital A/c (₹10) ----------Dr 1,00,000
To Equity Share Capital A/c (₹ 5) 50,000
To Capital Reduction A/c (₹ 5) 50,000
(Being paid up value of equity shares
reduced to ₹5 per share)
2. 6% Preference Share Capital A/c -----------Dr 60,000
To 8% Preference Share Capital A/c 60,000
(Being 6% preference shares are converted
into 8% preference shares)
3. Investments A/c ------------ Dr. 8,000
To Capital Reduction A/c 8,000
(Being investments revalued and balance
transferred to Capital Reduction A/c)
4. Capital Reduction A/c -----------Dr 40,000
To Plant & Machinery A/c 20,000
To Goodwill A/c 10,000
To Profit & Loss A/c 10,000
(Being reduction in asset is recorded and
goodwill & Profit & Loss is written off)
5. Capital Reduction A/c -----------Dr 18,000
To Capital Reserve A/c 18,000
(Being amount in capital reduction is
transferred to Capital Reduction A/c)
2,26,000 2,26,000

(3 marks )
Capital Reduction Account
Dr. Cr.
Particulars Amount Particulars Amount
To Plant & Machinery 20,000 By Equity Share Capital 50,000
To Goodwill 10,000 By Investments A/c 8,000
To Profit & Loss A/c 10,000
To Capital Reserve A/c 18,000
(Balancing Figure)
58,000 58,000
 Vijay Ltd.
Balance Sheet (And reduced)
As on 31st March 2025
[7 Marks]
Particulars Amount Amount
I. Equity and Liabilities
1. Shareholders Fund
a) Share Capital
i) 10,000 Equity shares of ₹ 5 Each 50,000
ii) 8%, 600 Pref. shares of ₹100 each 60,000 1,10,000

b) Reserves and Surplus:

General Reserve 40,000
Capital Reserves 18,000 58,000
2. Current Liabilities
i) Sundry Creditors 35,000
ii) Bills Payable 15,000 50,000
Total: 2,18,000

II. Assets
1. Non - Current Assets
i) Plant and machinery (1,00,000 – 20,000) 80,000
ii) Investments (80,000 + 8000) 88,000
1,68,000

2. Current Assets
i) Sundry Debtors 20,000
ii) Stock 20,000
iii) Bills Receivables 10,000 50,000
Total: 2,18,000
Q.2 Basera Ltd, Ahmedabad shows following balance sheet. [20 Marks]
Balance Sheet
As on 31st March 2025
Liabilities Amount Assets Amount
2,000, Equity Shares of ₹100 each 2,00,000 Land & Building 4,00,000
1,000, 8% Pref. Shares of ₹100 each 1,00,000 Furniture 1,80,000
5,000, 5% Debentures of ₹100 each 5,00,000 Sundry Debtors 1,20,000
Sundry Creditors 80,000 Bills Receivable 60,000
Bank Overdraft 20,000 Patents 90,000
Preliminary Expenses 50,000
9,00,000 9,00,000
Following scheme of reconstruction was approved and duly sanctioned
by court:
a) Equity share of ₹100 to be reduced to ₹ 90 fully paid-up shares.
b) 8% Preference Shares of ₹100 each are converted into 9% and amount is
reduced by 30%
c) Land & Building was to be appreciated by 10%,
d) Debentures are to be reduced by 20%
e) Furniture depreciated by 20%.
f) Patent and preliminary expenses are to be written off.
Pass Journal Entries in the books of Basera Ltd. Also prepare Capital Reduction
Account and a Balance sheet after reconstruction.
Q.2 [12 marks]
In the books of Basera Ltd.
Journal Entries
Particulars Amount Amount
1. Equity Share Capital A/c (₹100) ------- Dr 2,00,000
To Equity Share Capital A/c (₹ 90) 1,80,000
To Capital Reduction A/c (₹10) 20,000
(Being reduction in paid up value of
equity shares is recorded)
2. 8% Pref. Share capital A/c ------------- Dr 1,00,000
To 9% Preference Share Capital A/c 70,000
To Capital Reduction A/c 30,000
(Being changes in Dividend % is recorded)
3. Land & Building A/c ------------- Dr 40,000
To Capital Reduction A/c 40,000
(Being Appreciation in L&B recorded)
4. 5% Debentures A/c --------------- Dr 1,00,000
To Capital Reduction A/c 1,00,000
(Being debentures reduced by 20%)
5. Capital Reduction A/c ------------- Dr 1,90,000
To Furniture A/c 36,000
To Patent A/c 90,000
To Preliminary Exp A/c 50,000
To Capital Reserve A/c 14,000
(Being reduction in asset is recorded and
Patents & Preliminary written off and
balance transferred to Capital Reserve A/c)
6,30,000 6,30,000

Capital Reduction A/c [3 Marks]

Dr. Cr.
Particulars Amount Particulars Amount
To Furniture 36,000 By Land & Building 40,000
To Patent 90,000 By Equity Share Capital 20,000
To Preliminary Expenses 50,000 By 8% Preference Share Capital 30,000
To Capital Reserve A/c 14,000 By 5% Debentures 1,00,000
(Balancing Figure)
1,90,000 1,90,000
 Balance Sheet
As on 31st March 2025
(7 Marks)
Particulars Amount Amount
I. Equity and Liabilities
1. Shareholders Fund
a) Share capital
i) 2,000 Equity Shares of ₹ 90 Each 1,80,000
ii) 9%,700 Preference shares of ₹100 each 70,000 2,50,000

b) Reserves and Surplus: 14,000

Capital Reserve

2. Non -Current Liabilities: 4,00,000

5% Debentures
3. Current Liabilities 80,000
i) Sundry Creditors 20,000 1,00,000
ii) Bank Overdraft 7,64,000
Total:
II. Assets
1. Non - Current Assets
i) Land & Building (4,00,000 + 40,000) 4,40,000
ii) Furniture (1,80,000 – 36,000) 1,44,000
5,84,000
2. Current Assets
i) Sundry Debtors 1,20,000
1,80,000
ii) Bills Receivables 60,000
Total: 7,64,000
Q.3 Shubham Ltd, Satara shows following balance sheet as on 31st March
2025 [20 Marks]

Liabilities Amount Assets Amount

5000, Equity Shares of ₹ 100 each 5,00,000 Plant & Machinery 6,50,000
1000, 6% Preference Shares of ₹ 100 each 1,00,000 Furniture 1,50,000
4000, 5% Debentures of ₹ 100 each 4,00,000 Sundry Debtors 1,30,000
Sundry Creditors 50,000 Bills Receivable 50,000
Bank Overdraft 30,000 Preliminary Expenses 20,000
Bills Payable 10,000 Profit & Loss Account 10,000
Outstanding Expenses 10,000 Cash in hand 50,000
Bank 40,000
11,00,000 11,00,000

Following scheme of reconstruction was approved and duly sanctioned:

a) Equity Shares of ₹100 to be reduced to ₹ 80 fully paid-up shares.
b) 6% preference shares of ₹100 each are converted into 9% of ₹ 50 each
c) Plant & Machinery was to be depreciated with ₹ 50,000.
d) Furniture depreciated by 20%.
e) Preliminary Expenses and Profit & Loss Account is to be written off.
Pass Journal Entries in the books of Shubham Ltd, Satara. Also prepare Capital
Reduction Account and a reconstructed Balance sheet after considering above
information.
Q.3 In the books of Shubham Ltd
Journal Entries
[ 10 marks]
Particulars Amount Amount
6. Equity Share Capital A/c (₹100) ------------Dr 5,00,000
To Equity Share Capital A/c (₹ 80) 4,00,000
To Capital Reduction A/c (Rs.20) 1,00,000
(Being reduction in paid up value of
equity shares is recorded) [2 Marks]
7. 6% Preference share capital A/c (100)-------Dr 1,00,000
To 9% Preference Share Capital A/c (50) 50,000
To Capital Reduction A/c (50) 50,000
(Being 6% pref. shares are converted into 9%
pref. shares and reduction in the value of
Preference Shares recorded) [2 Marks]
8. Capital Reduction A/c ----------------- Dr. 110,000
To Plant & Machinery A/c 50,000
To Furniture A/c 30,000
To Preliminary Exp 20,000
To Profit & Loss A/c 10,000
(Being Plant and Machinery, Furniture
depreciated and Preliminary Expenses and
Debit Balance of P&L A/c written off) [4 Marks]
9. Capital Reduction A/c --------------- Dr 40,000
To Capital Reserve A/c 40,000
(Being amount in capital reduction is
transferred to Capital Reduction A/c) [2 Marks]
7,50,000 7,50,000
[Note: For combine Entry No. 3, If students pass separate entries, give 2 Marks each)

Capital Reduction Account:

[ 3 Marks]

Particulars Amount Particulars Amount

To Plant & Machinery 50,000 By Equity share capital 1,00,000
To Furniture 30,000 By 6% Pref share capital 50,000
To Preliminary Exp 20,000
To Profit & Loss A/c 10,000
To Capital Reserve A/c 40,000
1,50,000 1,50,000
 Shubham Ltd.
Balance Sheet (And reduced)
As on 31st March 2025
[7 Marks]
Particulars Amount Amount
[Link] and Liabilities
4. Shareholders Fund
c) Share capital
i) 5,000 Equity shares of ₹ 80 each 4,00,000
ii) 9%,1000 Preference shares of ₹ 50 each 50,000 4,50,000
d) Reserves and Surplus:
Capital Reserve 40,000 40,000
5. Non -Current Liabilities:
4,000 5% Debentures of ₹ 100 each 4,00,000
6. Current Liabilities
i) Sundry Creditors 50,000
ii) Bank Overdraft 30,000
iii) Bills Payable 10,000
iv) Outstanding Expenses 10,000 1,00,000
Total: 9,90,000

II. Assets
[Link] - Current Assets
i) Plant & Machinery 6,00,000
ii)Furniture 1,20,000 7,20,000

[Link] Assets
i)Sundry Debtors 1,30,000
ii)Bills Receivables 50,000
iii) Cash 50,000
iv) Bank 40,000 2,70,000
Total: 9,90,000