Question: The following is the Balance Sheet Manufacturing Co. Ltd.:
The company has, until recently, made trading losses. Debenture Interest is a year in arrears. Buildings and Plant are old, and fresh capital is required to set the business on a sound footing. A scheme of reduction is agreed as follows:
(a) The Ordinary Shares to be consolidated into 23,520 Shares of 10/- each.
(b) The rate of interest on the Preference Shares is to be reduced to 5 % and the 100,800 Preference Shares will then be consolidated into 33,600 shares of £1 each.
(c) The Debenture holders, in view of interest due, will accept 3,600 of the new Ordinary Shares.
(d) A further 52,880 Ordinary Shares will be issued for cash to the directors and their friends.
(e) Buildings and Plant are to be reduced to £35,000 and £25,000 respectively.
Re-printed by courtesy of the Royal Society of Arts (R.S.A.).
(f) The Share Capital is to be reduced by cancelling as unrepresented by assets 3/4d per share of the Preference Shares and 3/- per share of the Ordinary Shares.
The Profit & Loss Account Balance is to be wiped out. The scheme is carried out and the issue for cash is all subscribed. Show Journal entries for the translation and the Balance Sheet on completion.