QUESTION 4

The summarised balance sheet of Garuda Sdn Bhd as at 31.12.2009 was follows: RM Authorised capital: 200,000 5% cumulative preference shares of RM1/each 800,000 ordinary share of RM1/each Issued and paid up capital: 100,000 cumulative preference shares 500,000 ordinary shares Share premium Accumulated losses 8% debentures Current liabilities: Trade payables Loan from directors Bank overdraft 200,000 800,000 1,000,000 100,000 500,000 600,000 50,000 650,000 (350,000) 300,000 100,000 40,000 20,000 32,000 492,000 50,000 55,000 200,000 50,000 35,000 30,000 40,000 30,000 2,000 492,000

Goodwill Research and development Land and building Motor vehicle Fixtures and fittings Investments Inventories Trade receivable Cash in hand

Note: a. Arrears on preference dividends were RM20,000 b. There is a contingent liability for damages of RM30,000 which has not been provided.

A capital reduction scheme duly approved by the court was set out as follow: 1. The preference share to be reduced to 50 sen per share, and the ordinary shares reduced to 25 sen each. 2. The preference shareholders to receive one ordinary share of 25 sen each for every RM1 preference dividend in arrears. Hak Milik Sant Sahabat dan Kawan-Kawan. Dibenar untuk tujuan pembelajaran sahaja

3. 4. 5. 6.

Share premium account to be utilized for the scheme. The accumulated losses and all intangible assets are to be written off. To written off RM10,000 of inventories and RM5,000 of trade receivables as bad debts. Assets were revaluated as following: RM Land and building 235,000 Fixtures and fitting 30,000 Investment 23,000 7. The directors agreed to accept ordinary shares in place of their loans, and also agreed to subscribe for RM40,000 in ordinary shares of 25 sen per share. 8. Cost of reconstruction amounted to RM2,000. 9. Another special resolution was passed to restore the authorized capital. Subsequently the following transactions took place: i. The trade investment were sold for RM32,000 ii. The contingent liability materialised to the amount stated and the company settled to full amount. You are required to prepare: a. The journal entries to record the capital reduction b. The necessary ledger accounts c. The balance sheet of Garuda Sdn Bhd after the capital reduction had been completed.

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

ANSWER a. Journal Entries DEBIT 50,000 375,000 5,000 5,000 50,000 50,000 455,000 350,000 50,000 55,000 15,000 10,000 5,000 5,000 5,000 35,000 2,000 37,000 20,000 20,000 40,000 40,000 2,000 2,000 32,000 32,000 30,000 30,000 30,000 30,000 CREDIT

1.

2. 3. 4.

5.

6.

7.

8. 9.

b.

Preference shared capital Ordinary share capital Capital reduction account Capital reduction account Ordinary share Share premium Capital reduction account Capital reduction account Accumulated losses Goodwill Research and development Capital reduction account Inventories Trade receivables Capital reduction account Furniture and fitting Land and building Investment Capital reduction account Directors loans Ordinary share Bank Ordinary shares Capital reduction account Bank Bank Investment Capital reduction account Contingent liability Contingent liability Bank

425,000

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

b. Preference dividends - Ordinary share Accumulated losses Goodwill Research and development Fixture and fitting Accounts receivables Inventories Contingent liability Cost of reorganisation (bank)

Capital Reduction Account RM Preference share 5,000 Ordinary share 350,000 Share premium 50,000 Land and building 55,000 Profit on sales investment 5,000 5,000 10,000 30,000 2,000 512,000

RM 50,000 375,000 50,000 35,000 2,000

512,000

c.

Garuda Sdn Bhd Balance Sheet as at 31.12.2009 RM Authorised capital: 400,000 5% cumulative preference share @ RM0.50 3,200,000 ordinary share @ RM 0.25 Issued and paid up capital: 100,000 5% cumulative preference shares 760,000 ordinary shares Non-current liability: 8% debentures Current liability: Trade payable Bank overdraft RM 200,000 800,000 1,000,000 50,000 190,000 240,000 100,000 40,000 32,000 72,000 412,000 Non-current assets: Land and building Motor vehicle Fixture and fitting Inventory Trade receivables Cash in hand 30,000 25,000 42,000 97,000 412,000 235,000 50,000 30,000 315,000

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