If the company is in a very bad position, even the debenture-holders may be prevailed upon to accept a reduction of their claims. 2,25,000 and Rs. Purchase Consideration (PC) 5 1D. Hence, the preference shareholders should agree to a reduction of their capital by 20% or Rs 2,00,000 in all. Even the interest to debenture-holders cannot be paid unless the company’s activities are profitable. external fixation in our practice were identified from an IRB approved limb reconstruction registry. It was also agreed that 12% debentures in V Ltd. would be converted into 13% debentures in P Ltd. of the same amount and denomination. 4 Internal Reconstruction of Companies (Including reconstruction schemes) 5 External Reconstruction of Companies 6 Accounting for Banking Companies 7 Accounting for Insurance Companies 8 Liquidation of Companies: Preparation of Statement of Affairs and Deficiency account, Liquidator’s Final statement of Accounts, List B Contributories. between partners when vendor is a firm 25 1G. Types of merger 4 1C. Content Guidelines 2. Since Theta Ltd. does not have sufficient funds the liability will have to be taken over by the new company and then paid by it. Act) required that the Department of Health and Human Services (HHS) develop methods to estimate radiation doses (dose reconstruction) for nuclear weapons workers with cancer who External ear reconstruction involves various degrees of surgical repair and may be performed to correct the congenital absence of an external ear for conditions such as microtia and anotia or to correct an external ear that has been altered as a result of trauma or surgery. Will the reconstruction be internal or external? Overall, the results for 47 femora in 43 patients were retrospectively reviewed. Inventories are worth their stated value but among the trade receivables there are doubtful debts to the extent of Rs 30,000 (expected to realise 33.33%). They should accept preference shares of the total value of Rs 8,00,000 in the new company. (3) Payment of arrears of dividend (question arises only in case of cumulative preference shares) in cash immediately may present difficulties. Legal position as regards external reconstruction: Section 494 of the Companies Act permits the liquidator of a company to transfer the whole or any part of the company’s business or property to another company and receive from the transferee company (by way of compensation or part compensation) shares etc. External ear deformities usually do not result in a functional Scribd is the world's largest social reading and publishing site. Later, the company may be able to improve its earning power. Trade Receivables appearing in the balance sheet of V Ltd. include Rs, 10,000 due from P Ltd. (a) Prepare Realisation Account and Equity Shareholders Account in the books of V Ltd. (b) Pass journal entries in the books of P Ltd. and redraft P Ltd.’s balance sheet immediately after amalgamation assuming (i) it is an amalgamation in the nature of purchase and (ii) it is an amalgamation in the nature of merger. There is, however, one important right which the equity shareholders enjoy. Account Disable 11. They are the worst sufferers, since other parties have slightly improved their position in respect of yields. Open navigation menu If the future earning power of the company permits, the dividend rate should be increased so that, in terms of rupees, the dividend remains unchanged. Disclaimer 9. The entries, if the scheme is accepted, will be as follows: The Balance Sheet of that a Ltd. as on 31st March, 2012 as follows: (Preference dividends are in arrear for two years and are payable on liquidation automatically). It should be remembered that in internal reconstruction fully paid up shares cannot be converted into partly paid up shares unless every shareholder gives his assent in writing. 1F Distribution of shares/debentures etc. The requirements of working capital must not be overlooked. (a) Creditors, specially bank overdraft and debenture-holders, may continue whereas they may not if the company is formally liquidated which will involve payment of claims to outsiders. The trade payables include Rs 80,000 due by the Wallace Ltd. to the Bharat Ltd. Journalise the closing entries of Wallace Ltd. and the opening entries of Bharat Ltd. In both cases then, the dividend will be Rs 10.5 per share. It is recommended that for five years at least a sum equal to the equity dividend should be set aside out of profits to restore the claims of sundry creditors partially. The equity shareholders may not agree to the conversion of preference shares or debentures into equity shares even if the holders of preference shares or debentures are willing to accept lower security for their holdings. Terms of Service 7. Amalgamation and External Reconstruction: Problem # 2. This may prove cumbersome. The equity shareholders will not easily give up this right, and hence the reconstruction scheme should keep this in mind. In such an eventuality, the creditors (including debenture-holders) will have to accept sacrifice unless they think that by sending the company into liquidation they will be able to realise substantial portion of then- claims. External reconstruction takes place when an existing company goes into liquidation for the express purpose of selling its assets and liabilities to a newly formed company which is generally owned and named alike. (b) It may help in raising more finance by issuing to the existing shareholders partly … Whereas the market price of the equity shares in Bharat Ltd. is Rs 14, making entries at par does not really make a difference. If the net assets are not sufficient to cover the preference share capital (or if the net assets are just sufficient), the preference shareholders will have to accept a sacrifice, although their sacrifice will be smaller than that of the equity shareholders (Equity shares must not be completely wiped off). Thus if 10.5% preference shares of Rs 100 are converted into preference shares of Rs 75 each, the rate of dividend should be raised to 14%, if possible. External ear reconstruction involves various degrees of surgical repair and may be performed to correct the congenital absence of an external ear for conditions such as microtia and anotia or to correct an external ear that has been altered as a result of trauma or surgery. (b) The company will be able to set off its past losses against future profits for income-tax purposes. Image Guidelines 4. The consideration is as follows: (ii) The payment of cost of amalgamation not exceeding Rs 8,000; (iii) A payment of Rs 1.5 per share in cash and allotment of one 14% preference share of Rs 10 each and 5 equity shares of Rs 10 each fully paid for every 4 shares in Wallace Ltd. Shareholders of Wallace Ltd. have also not suffered at all because, although in the books the equity shares in Bharat Ltd. have been recorded at Rs 10, they have in fact received shares worth Rs 14. External Reconstruction: When a company is suffer-mg losses for the past several years and facing financial crisis. Hence, in case of external reconstruction, losses cannot be carried forward for income-tax purposes. Reconstruction involves various degrees of surgical repair and may be performed to correct the congenital absence of an external ear for conditions such as microtia and anotia or to correct an In this article we will discuss about the top five problems on Amalgamation and External Reconstruction with their relevant solutions. Updated Occupational Medical Dose Internal reconstruction means that the scheme will be carried out by means of reduction of capital, i.e., by getting the approval of the Court. Financial Accounting (B.Com.,BAF,BBI,BMS & other) AMALGAMATION, ABSORPTION AND EXTERNAL RECONSTRUCTION MULTIPLE CHOICE Losses can be carried forward for eight years provided the business is carried on. in the transferor company for distribution among the shareholders of the company under liquidation. 1,20,000 should be sufficient. The debenture holders should agree to accept a substantial sacrifice in view of the loss that they will surely suffer if the company goes into liquidation. The total amount to be written off is as follows:—. Expenses of liquidation of S Ltd, Rs 6,000 were met by P Ltd. Also pass journal entries in the books of P Ltd. and prepare its balance sheet assuming (i) it is an amalgamation in the nature of purchase and (ii) it is an amalgamation in the nature of merger. Image Guidelines 5. (4) Debenture-holders and other creditors are affected by the reconstruction scheme only if the total assets of the company are insufficient to cover even the liabilities (although their consent will be necessary to any scheme that may be formulated). The equity shareholders will naturally have to bear the brunt of the losses and sacrifice. The present section seeks to discuss how and on what basis, schemes should be formulated. The following were the balance sheets of P Ltd. and V Ltd. as at 31st March, 2012: All the bills receivable held by V Ltd. were P Ltd.’s acceptances. The upcoming discussion will update you about the difference between External Reconstruction and Amalgamation. View AMALGAMATION OF COMPANIES.pdf from ECON 101 at Akron Comm Sch East. Against these assets the liabilities amount to Rs 36,80,000. This is preferable to issuing shares because (a) it will not upset the voting power and (b) the certificates can be redeemed as soon as opportunity arises. ... To capital reserve a/c External reconstruction is effected by liquidating the company. The heaviest sacrifices will have to be made by the shareholders. Disclaimer 8. (b) The company will require additional cash as follows: Accounting, Share Capital, Reconstruction, Schemes. Amalgamation involving inter-company shareholding (AS-14 is silent on this point) 20. In such a case, a good method is to issue deposit certificates. Content Filtration 6. (2) The question now arises as to who is to bear the loss. If the value of any asset can be legitimately increased, the amount of the loss would then be reduced accordingly. In it a new company is formed to acquire the business of an existing company are transferred to the newly formed company. The Works and Plant is worth Rs 15,00,000 (Rs 10,00,000 if it has to be sold). (b) The total loss to be written off is Rs 12,70,000 made up as follows; As suggested above, the preference shareholders should agree to a sacrifice of Rs 2,00,000. Under net assets method , accumulated profits should not form part of liabilities. This seems rather unreasonable for the trade payable who have made a sacrifice of 80% of their claims (equal to the preference shareholders). (a) External reconstruction may be the only way to bring about speedy reconstruction because sometimes a few people hold up the scheme by delaying tactics by means of legal objections. The Board of Directors of the company ask you (i) to draft a scheme of internal reconstruction which would be equitable to all the parties, (ii) to detail the journal entries to be made after all the formalities have been complied with, and (iii) to reframe the Balance Sheet. Internal reconstruction result in … The accounting procedure of internal reconstruction is distinct from that of amalgamation, absorption and external reconstruction. The reconstruction arrangement made by a company, to come out of its financial difficulties, may be external or internal. External ear reconstruction is a procedure that attempts to reconstruct the external ear to normal anatomical shape and appearance. The business will technically end where the company is liquidated. 2,70,000 (before providing for interest but after charging adequate depreciation). If the net assets are more than the preference share capital, it is obvious the whole of the loss will have to be borne by the equity shareholders—the nominal value of the equity shares should be reduced by a sufficient margin to cover the loss. It requires the approval of shareholders, creditors and National Company Law Tribunal (NCLT). The preference shareholders should be compensated by the rate of dividend being raised to 14%. Meanings 2 1B. (This does matter in case of preference shareholders and debenture-holders whose earnings depend on the nominal value). If the shares are reduced to Rs 1.50 each, the equity share capital will be Rs 1,95,000 and a sum of Rs 11,05,000 will become available. The following particulars are supplied to you:—. Sometimes, outsiders are willing to subscribe to the shares but they will generally prefer to do so if they are given a controlling share. The actual cost of amalgamation came to Rs 10,000. The following are the summarised balance sheets of V Ltd and P Ltd as at 31st March, 2012: P Ltd. acquires the entire business of V Ltd. for Rs 14,00,000 to be satisfied by allotment of equity shares at par. If the company goes into liquidation, the tax liability will be payable in full leaving Rs 19,00,000 for debenture holders who have a floating charge, the debenture holders will suffer a loss of Rs 8,60,000. Amalgamation and External Reconstruction: Problem # 1. Internal Reconstruction 5.6 Question 2 The following is the Balance sheet of Weak Ltd. as on 31.3.2012: Liabilities Rs. The share capital compared with net assets will show how much amount is to be written off. Companies may combine in following ways (i) absorption (ii) amalgamation (iii)external reconstruction (iv)internal reconstruction (v) merger (a) any of above (b) none of above (c) any except (iv) (d) any except (v) 2. Overview of our CNN-based coded HSI reconstruction method. The market value of the equity shares of Bharat Ltd. is Rs 14 but it is desired that entries should be made on the basis of par value only. Uploader Agreement, Read Accounting Notes, Procedures, Problems and Solutions, Learn Accounting: Notes, Procedures, Problems and Solutions, Difference between Shares and Debentures | Finance Sources, Alteration of Share Capital for Reconstruction, Alteration of Share Capital and Internal Reconstruction | Accounting, Steps for Reconstruction Scheme | Capital. Plagiarism Prevention 4. (ii) Prepare P Ltd.’s balance sheet immediately after the merger. External reconstruction means that the scheme will be carried out by liquidating the existing company and incorporating immediately another company (with the name only slightly changed such as A B (2009) Ltd. instead of A B Ltd. to take over the business of the outgoing company. The expenses of liquidation amounted to Rs 4,000. After wiping off the various losses, a sum of Rs 35,000 can then be placed to Capital Reserve. Amalgamation and External Reconstruction: Problem # 4. Amalgamation Absorption & External reconstruction (Continue…) Q4) Short note on Amalgamation Adjustment Account: Amalgamation is a union between two or more companies to consolidate their business activities by establishing a new company having a separate legal existence. Assets Rs. In the previous section, the legal position and entries in respect of reduction of capital (which in other words means internal reconstruction) have been seen. But it is not done in the internal reconstruction. It is recommended that the following reductions should be made: The rate of interest on debentures should be raised to 12% and the dividend on preference shares to 14%, This will partly compensate the sacrifices made by them. (1) First of all the total amount to be written off should be ascertained. It should also be noted that, without the consent of the parties concerned, their liability cannot be increased. (b) They must have already known that the value of their holding is small due to absence of dividends. The equity shareholders may like to consolidate their position by buying more shares. Section 66 of the companies Act governs the internal reconstruction. The rate of interest need not be heavy; but, of course, it will depend on the future earning capacity of the company. External Reconstruction Problem No.7: (MGP-3/5.67) Green Ltd. went into voluntary liquidation for its reconstruction on 31st March 2014, when its Balance Sheet was as follows. Prohibited Content 3. External Comparison: The Case of the Indo-Uralic Laryngeals1 A DAM H YLLEST ED University of Copenhagen Abstract The PIE laryngeals were discovered by internal reconstruction, but this method has limits. (i) 10% Debentures, Rs, 5,00,000 (in debentures of Rs 100 each) for distribution amongst Debenture-holders of Theta Ltd. (ii) 14% Preference Shares, of Rs 8,00,000 (in shares of Rs 10 each) for distribution amongst preference shareholders of Theta Ltd. (iii) 19,500 Equity Shares of Rs 10 each, fully paid for distribution amongst equity shareholders of Theta Ltd. It was agreed that in discharge of consideration for the business, P Ltd. would allot three fully paid equity shares of Rs 10 each at par for every two shares held in V Ltd. Trade payables and the shareholders, both preference and equity, will get nothing. If the scheme is accepted, the future distribution of profit on the basis of the minimum profits of Rs 2,25,000 will be as follows; This would enable a dividend of 28.2% to be paid on equity shares. Had the entries been made at Rs 14, the amount of goodwill would have been increased but, then, Rs 4 per share would have been credited to Securities Premium Account. Having decided who is to bear how much sacrifice or loss and having settled the broad details of the scheme, an important question remains to be decided. Trade payables who stand to get nothing, if the company goes into liquidation, should accept a heavy reduction in their claims. Internal Reconstruction is also known as Capital Reduction. In view of expected profits in future, the rate of interest should be raised as a consideration for reduction in their claim. Before uploading and sharing your knowledge on this site, please read the following pages: 1. External Reconstruction Definition - Free download as Word Doc (.doc), PDF File (.pdf), Text File (.txt) or read online for free. The cash and bank balances of Rs. Prohibited Content 3. Internal vs External Reconstruction Differences. On 31st March, 2012, Thin Ltd. was absorbed by Thick Ltd., the latter taking over all the assets and … By enabling the payment of a dividend on such shares being raised to 14 % 2 ) the question arises. 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