In Internal Reconstruction Can we use the word Capital Reduction as Reconstruction in all the cases?
Or
The Word Reconstruction can be used only in "scheme of compromise & arrangement"?
Dilip
(student)
(212 Points)
Replied 28 September 2012
Thanks for the reply..... i know that in most of the cases the word Capital reduction is used
but is it wrong to replace it with the word Reconstruction? because Reconstruction includes capital reduction
Sanjay S
(Chartered Accountant)
(1375 Points)
Replied 28 September 2012
Hey everyone..
A compromise \ arrangement (one of the 5 methods of internal reconstruction) is an agreement b\w the company and its members & outside liabilities, when the company faces financial problems. Such an agreement therefore also includes Sacrifices by shareholders, or creditors and debentureholders, or by all. Here we open a ' Reconstruction a\c '.
But in some cases, the losses to be written off are very heavy, even Trade Creditors and Debenture Holders may be persuaded to make a sacrifice. In such a case, CAPITAL REDUCTION A\c is not opened... it must be either be REORGANISATION or RECONSTRUCTION A\C.
Chinnu Raj
(CA Final Student B.Com)
(1067 Points)
Replied 03 October 2012
You can use either of those two words.There is no compulsion to write only the word 'reconstruction' or 'capital reduction'
my view of the above topic:
capital is nothing but the excess portion of assets over liabiities
.so every change in the asset or liabiity leads to a change in capital.
whenever losses are written off it leads to a depletion in assets( thou fictitious).
so it has an impact on the share holders' claims or broadly capital.
Hence both the words can be synonymously used.
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