ADVANCED CORPORATE ACCOUNTING
SKILL DEVELOPMENT QUESTIONS
1. List out legal provisions in respect of Redemption of Preference shares
The following is the extract of section 80 of the Indian companies act, relating to
redemption of preference shares. As per the provisions of this section, a company limited
by shares may, if so, authorised by its articles, issue preference shares which are, or at the
option of the company are to be liable, to be redeemed:
Provided that:
a) No such shares will be redeemed except out of profits of the company which would
otherwise be available for dividend or out of the proceeds of a fresh issue of shares
made for the purpose of the redemption;
b) No such shares shall be fully redeemed unless they are fully paid;
c) The premium, if any, payable on redemption shall have been provided for out of the
profits of the company or out of the company’s securities premium account, before
the shares are redeemed;
d) Where any such shares are redeemed otherwise than out of the proceeds of a fresh
issue, there shall, out of profits which would otherwise have been available for
dividend, be transferred to a reserve fund, to be called the “capital redemption
reserve account”, a sum equal to the nominal amount of the shares redeemed; and
the provisions of this act relating to the reduction of the share capital of a company
shall, except as provided in this section, apply as if the capital redemption reserve
account were paid up share capital of the company.
2. Calculation of Purchase consideration with imaginary figures under Net Asset
Method
Calculation of Purchase Consideration under Net Asset Method
Particulars Rs Rs
Value of Assets Taken Over
Plant and Machinery 10,00,000
Land and Building 12,00,000
Stock 4,00,000
Debtors 2,00,000 28,00,000
VANDANA RAMESH - ASST PROFESSOR, SFC COLLEGE 1
ADVANCED CORPORATE ACCOUNTING
Less: Value of liabilities taken over
Debentures 12,00,000
Creditors 5,50,000 17,50,000
Purchase Consideration 10,50,000
3. List out legal provisions in respect of internal reconstruction.
Section 100 to 105 of the companies act 1956 contain the legal provisions relating to
internal reconstruction which involves in essence an alteration of the share capital and
adjustments in the values of assets and liabilities. An alteration of share capital may be
done in any of the ways:
• Reduction in share capital
• Consolidation
• Sub-division
• Conversion and
• Cancellation or surrender
However, the following conditions must be satisfied:
❖ The scheme is authorised by Articles of Association and passed by a special
resolution of the general meeting and confirmed by the court.
❖ The scheme does not affect the creditors interest in any way. If the proposed
scheme affects the interests of the creditors, the court/Government shall
confirm the scheme only after consulting the creditors.
❖ The Government (Company Law Board) shall pass the order of
confirmation of internal reconstruction on such terms and conditions as it
may think proper and just after consulting the creditors.
❖ The court may order the use of word “and reduced” after the name the
company and may order the company to publish the reason of such reduction
❖ Capital reduction may involve variation of rights of different classes of
shares. In such a case the consent of the holders of three fourth shares should
be obtained.
❖ Holders of at least one-tenth of the issued capital affected by variation apply
to court, within 21 days after the consent is obtained or resolution is passed,
VANDANA RAMESH - ASST PROFESSOR, SFC COLLEGE 2
ADVANCED CORPORATE ACCOUNTING
for cancellation of such variation. However, the decision of court shall be
final.
4. Calculation of PC under Net Payment method with preference share, equity share
and cash with imaginary figures.
Particulars Rs.
a. Equity shares 56,000
(8,000 E/S of Rs.7 each)
b. Preference shares 44,800
(5,600 shares of Rs.10 each @ 8 per share)
c. Cash 21,200
Purchase consideration 1,22,000
5. Prepare Liquidator’s Final Statement of Account with imaginary figures.
Receipts Rs Payments Rs
Assets realised Secured creditors 1,00,000
Land and building 5,50,000 Liquidation expenses 2,400
Plant and machinery 8,20,000 Liquidators’ remuneration
Stock 1,80,000 2% on assets realised 38,800
Debtors 2,40,000 (19,40,000x2%)
securities 1,50,000 2% on unsecured creditors 3,750
(1,87,500 x 2%)
Cash at bank 60,000 Preferential creditors 37,500
6% Debentures 5,00,000
Interest on debentures 30,000
Unsecured creditors 1,50,000
Preference share holders
Preference share dividend
(10,00,000x5%x2) 1,00,000
5% P/s Capital 10,00,000
Equity shareholders
Equity share capital 37,550
20,00,000 20,00,000
VANDANA RAMESH - ASST PROFESSOR, SFC COLLEGE 3
