Internal Reconstruction Ismail Classes Ismail Sir

  Internal Reconstruction means reduction of capital, decrease the value of assets and heavy accumulated losses compul the director to go for internal reconstruction in order to put the company on a strong financial position. Reduction of capital is unlawful / illegal except when it is sanctioned by the court of law. In case of internal reconstruction every company has to write off / cancel intangible assets and Fictitious assets compulsorily.

1. When the face value of share remain same

Share Capital A/c Dr

            To Capital Reduction A/c

2. When the face value of share change

   Share Capital A/c Dr

          To New Share Capital A/c

         To Capital Reduction A/c

3. When Sacrifice is made by the debenture holder

  Debenture A/c Dr

        To Capital Reduction A/c

4. When Sacrifice is made by the Creditors

  Creditors A/c Dr

        To Capital Reduction A/c

5. When assets is appreciated

  Assets A/c Dr

        To Capital Reduction A/c

6. When assets is depreciated

   Capital Reduction A/c Dr

         To Assets A/c

7. When Intangible and fictitious assets are Written off

  Capital Reduction A/c Dr

          To Intangible Assets A/c

          To Fictitious Assets A/c

8. When assets is sold

  (a) sold at a profit

  Bank A/c Dr

     To Assets A/c

     To Capital Reduction A/c

  (b) sold at a loss

  Bank A/c Dr

  Capital Reduction A/c Dr

       To Assets A/c

 9. When unrecorded assets is sold

  Bank A/c Dr

      To Capital Reduction A/c

10. When reserves are utilized

  Reserve A/c Dr

      To Capital Reduction A/c

11. When recorded liability is paid

  (a) paid at a loss

    Liability A/c Dr

    Capital reduction A/c Dr

         To Bank A/c

(a) paid at a profit

  Liabilities A/c Dr

      To Bank A/c

      To Capital Reduction A/c

12. When unrecorded liability is paid

  Capital Reduction A/c Dr

        To Bank A/c

13. When contingent liability is paid

   Capital Reduction A/c Dr

       To Bank A/c

14. When reconstruction expenses are paid

  Capital Reduction A/c Dr

         To Bank A/c

15. When claim recovered against Contingent liability

   Bank A/c Dr

       To Capital Reduction A/c

16. When arrears of preference dividend settled by issuing equity shares/ debentures/ Cash

  Capital Reduction A/c Dr

      To Equity share capital A/c

      To Debenture A/c

      To Bank A/c

17. When arrears of preference dividend cancelled

          No Entry

18. When Debenture holder take over some assets

(a) Assets taken over at less than the book value

    Debenture A/c Dr

    Capital Reduction A/c Dr

          To Assets A/c

(b) Assets taken over at more than the book value

  Debenture A/c Dr

       To Assets A/c

       To capital reduction A/c

19. When share are consolidated

  Share Capital A/c Dr

     To consolidated share capital A/c

20. When share are sub divided

  Share Capital A/c Dr

     To subdivided share capital A/c

21. When shares are surrendered

  Share Capital A/c Dr

     To Share Surrendered A/c

22. When Surrendered shares are converted into preference shares

  Share Surrendered A/c Dr

     To Preference share capital A/c

23. When surrendered shares are issued to creditors or debentures

  Share surrendered A/c Dr

       To Equity share capital A/c

24. When surrendered shares are cancelled

  Share Surrendered A/c Dr

       To Capital Reduction A/c

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