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BKAF3063: FINANCIAL ACCOUNTING AND REPORTING III (A152)

 

TUTORIAL 8 ? COMPANY RECONSTRUCTION

 

QUESTION 1

 

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.

 

RM

 

Credit:

 

Ordinary shares of RM1 each

 

7% Preference shares of RM1 each

 

Revaluation reserve

 

8% Debentures

 

Loan from directors

 

Account payables

 

Bank

 

Total

 


 

2,000,000

 

1,000,000

 

285,000

 

300,000

 

700,000

 

200,000

 

60,000

 

4,545,000

 


 

Debit:

 

Land

 

Building (net)

 

Equipment (net)

 

Goodwill

 

Inventories

 

Account receivables

 

Accumulated loss

 

Total

 


 

650,000

 

1,790,000

 

750,000

 

150,000

 

350,000

 

450,000

 

405,000

 

4,545,000

 


 

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:

 

(i)

 


 

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.

 


 

(ii)

 


 

Directors agreed to convert their loan to 5% debentures of nominal value

 

RM500,000.

 


 

(iii)

 


 

To write off the accumulated loss and goodwill.

 


 

(iv)

 


 

The following values to be adopted:

 

RM

 

Land

 

Building

 

Equipment

 

Inventories

 


 

(v)

 


 

862,500

 

1,250,000

 

560,000

 

250,000

 


 

RM178,000 of the account receivables are to be written off.

 

1

 


 

(vi)

 


 

Cost of reorganization amounted to RM119,500.

 


 

(vii)

 


 

The asset revaluation reserve is to be utilized for the scheme.

 


 

REQUIRED:

 

a

 


 

Show the necessary journal entries for the reconstruction scheme.

 


 

b

 


 

Prepare the Statement of Financial Positions for ABC Bhd immediately after the

 

reconstruction.

 


 

QUESTION 2

 

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

 

8% debenture

 

Revaluation reserve

 

Interest payable on debenture

 

Trade payables

 

Loans from directors

 

Bank overdraft

 

Land

 

Building (net book value)

 

Equipment (net book value)

 

Goodwill

 

Investments

 

Inventories and work in progress

 

Trade receivables

 

Accumulated loss

 


 

RM?000

 

200,000

 

70,000

 

80,000

 

50,000

 

12,800

 

96,000

 

16,000

 

36,960

 

561,760

 

200,000

 

27,246

 

16,754

 

40,000

 

47,000

 

120,247

 

70,692

 

39,821

 

561,760

 


 

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

 


 

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:

 

RM?000

 

Land

 

163,566

 

Building

 

50,000

 

Equipment

 

11,000

 

Inventories and work in progress

 

50,000

 

10. The asset revaluation reserve is to be utilized for the scheme.

 

REQUIRED:

 

(a)

 


 

Show necessary journal entries to effect the reconstruction scheme.

 


 

(b) Prepare the Statement of Financial Position of the company immediately after the

 

reconstruction.

 


 

3

 


 

 

Paper#9257125 | Written in 27-Jul-2016

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