sivaram (Asst Mgr-Taxation) (6918 Points)
26 August 2015Dear All
A Scheme of Reconstruction has been awarded by court
In the Balance sheet Share Capital exhibited as 20000 shares of Rs 10 each Rs200000
If Adjustment is given as
1.Equity shares are reduced to Rs7.50
2.Equity Shares are Reduced by Rs7.50
Are both wordings one and the same how should I interpret the adjustment and passentries
Is it talking about reducing paid up value or Face Value
Give Journal entries for both the adjustment scenario with explanations
Thanks in advance
Kaushik Sekar
(Article Assistant)
(66 Points)
Replied 26 August 2015
Hello Sir. The two adjustments have different meanings.
The word 'to' means that the share price has gone from 10 per share to 7.5 pershare
The word 'by' means that the share price has gone done by 7.5 (i.e. 10 less 7.5 = 2.5)
Hence the journal entries will be as follows :
Case 1 (TO)
Dr. Equity Share Capital A/c - 2,00,000
Cr. Equity Share Capital A/c - 1,50,000
Cr. Capital Reduction/Reconstruction A/c - 50,000
Case 2 (BY)
Dr. Equity Share Capital A/c - 2,00,000
Cr. Equity Share Capital A/c - 50,000
Cr. Capital Reduction/Reconstruction A/c - 1,50,000
Please question me in case of further clarification.
CAclubindia
