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BKAF3063: FINANCIAL ACCOUNTING AND REPORTING III (A152)
TUTORIAL 8 ? COMPANY RECONSTRUCTION
ABC Bhd is in financial difficulty and decided to reorganize its financial affairs. The
following information is extracted from its financial statement as at 31 December 2014.
Ordinary shares of RM1 each
7% Preference shares of RM1 each
Loan from directors
Notes: The authorized capital of ABC Bhd consists of 2,500,000 units of ordinary shares at
RM1 each and 1,000,000 units of 7% preference shares at RM1 each.
The following restructuring scheme has been approved by the court. This scheme has been
implemented on 30 June 2015 as planned:
Ordinary shares of RM1 each to be converted into one fully paid ordinary
share of 60 cent each and 20% of preference shares to be cancelled.
Directors agreed to convert their loan to 5% debentures of nominal value
To write off the accumulated loss and goodwill.
The following values to be adopted:
RM178,000 of the account receivables are to be written off.
Cost of reorganization amounted to RM119,500.
The asset revaluation reserve is to be utilized for the scheme.
Show the necessary journal entries for the reconstruction scheme.
Prepare the Statement of Financial Positions for ABC Bhd immediately after the
The following is a trial balance at 31 December 2015 extracted from the books of FGH Bhd.
Ordinary Shares of RM1 each
5% cumulative preference shares of RM1 each
Interest payable on debenture
Loans from directors
Building (net book value)
Equipment (net book value)
Inventories and work in progress
The authorized share capital is 200,000,000 ordinary shares of RM1 each and 100,000,000
5% cumulative preference shares of RM1 each.
During a meeting of shareholders and directors, it was decided to carry out a scheme of
internal reconstruction due to the financial difficulties faced by the company. The following
scheme has been duly passed and the approval of the court obtained:1. Each ordinary share is to be reduced to 50 sen each. The ordinary shareholders are to
accept a reduction in the nominal value of their shares from RM1 to 50 sen and to
subscribe for new issue on the basis of 1 for 1 at a price of 60 sen per share.
2. The existing 70,000,000 preference shares are to be exchanged for a new issue of
35,000,000 8% cumulative preference shares of RM1 each and 70,000,000 ordinary
share of 50 each.
3. The debenture holders are to accept 10,000,000 ordinary shares of 50 sen each in lieu of
the interest payable. It is agreed that the value of the interest liability is equivalent to the
nominal value of the shares issued. The interest rate is to be increased to 9.5%. A further
RM9,000,000 of this 9.5% debentures is to be issued and taken up by the existing
holders at RM90 per RM100.
4. RM6,000,000 of directors? of directors? loan is to be cancelled. The balance is to be
settled by issue of 16,500,000 ordinary share of 50 sen each.
5. Goodwill and accumulated losses are to be written off.
6. The investment has a market value of RM60,000,000
7. RM46,000,000 is to be paid to trade creditors now and the balance at quarterly intervals.
8. RM7,298,000 of the trade receivables are to be written off.
9. The remaining assets were professionally valued and could be included in the books and
accounts as follows:
Inventories and work in progress
10. The asset revaluation reserve is to be utilized for the scheme.
Show necessary journal entries to effect the reconstruction scheme.
(b) Prepare the Statement of Financial Position of the company immediately after the
Paper#9257125 | Written in 27-Jul-2016Price : $17.85