2. 1. Prescribe accurately company’s reconstruction
procedurs and relevant accounting theory
application according to the situation given. (C5)
2. Conduct properly in preparing financial statements
of Financial Position after internal and external
company’s reconstruction. (P4)
3. Discuss precisely the underlying accounting theory
in preparing company’s financial statement and
accounting roles in sustainable development using
appropriate concepts according to the situation
given. (A2)
4. When the company
may have more
than its optimum
level of capital
or
Its paid up capital
was eroded by
heavy losses
5. Means, the company can not redeem
back shares that have been issued and
paid by the shareholders.
Requires a company’s paid up capital to
be maintained except in special
circumstances such as share buy back.
6. Sec 65: allows a company to reduce its capital
provided the following conditions are satisfied:
a)The scheme
has been
confirmed by
the court
b)The Articles
of association
has provided
the terms of the
internal
restructuring of
the company
c) A special
resolution was
be passed by
the company
7. * When the company had to go through
the process of winding. Winding up a
company is a process where all assets
are liquidated to raise cash to settle all
the liabilities of the company
* When the company have surplus
capital or whose capital was
eroded by trading losses. It
involves reducing the par value of
ordinary shares and preference
shares or dispose of the value of a
company not to call
EXTERNAL
INTERNAL
8. Determine the total amount to be
written off.
The accumulated losses have to
be eliminated.
Assets have to be revalued and
written down/up to market value
(fair value)
The right of various creditors must
be considered. Sometimes,
debenture holders and even trade
ant other creditors may accept a
reduction on their claims or be
willing to convert their claim into
shares.
Determine the amount of loss the
preference shares could bear.
Preference dividends may be
arrears, and the preference
shareholders may be willing to
waive their rights to the dividends
in arrears.
The scheme devised should be
equitable to all affected parties.
9. • Dt Share Capital Acc
(OS/PS)
• Cr Capital Reduction Acc
(CRA)
Amount
written off
share capital
• Dt ReserveAccounts
(Capital/General)
• Cr Capital Reduction Acc
(CRA)
Reserves
utilized for
the scheme