Question 2 Sustain Limited is incurring losses due to adverse market conditions. It decided to reorganize is capital structure. The summarized Balance Sheet of the company as on 31st March, 2024 is as follows: Particulars Notes ` Equity and Liabilities 1. Shareholders’ Fund 1 10,00,000 (a) Share Capital 2 (2,50,000) (b) Reserves and Surplus 2. Non-current liabilities Long term borrowing 3 4,50,000 3. Current liabilities (a) Trade Payables 1,30,000 (b) Short term borrowings – Bank Overdraft 65,000 (c) Other Current Liabilities (Interest payable on Debentures) 45,000 (d) Short term provision (Provision for Income Tax) 1,00,000 Total 15,40,000 Assets 1. Non-current assets (a) Property, Plant & Equipment 4 8,50,000 (b) Intangible assets 5 60,000 (c) Non-current investments 6 2,80,000 2. Current assets (a) Inventories 1,20,000 (b) Trade receivables 2,30,000 Total 15,40,000 Notes to accounts: ` 1. Share Capital Equity share capital: 50,000 Equity shares of ` 10 each fully paid up 5,00,000 25,000 Equity shares of ` 10 each, ` 8 paid up 2,00,000 Preference share capital: 30,000 8% Cumulative Preference shares of ` 10 each (Preference dividend has been in arrears for 3 years) 3,00,000 10,00,000 ADVANCED ACCOUNTING 2. Reserves and Surplus Profit and Loss account (debit balance) (2,50,000) 3. Long-term borrowings Secured: 10% Debentures of ` 100 each 4,50,000 4,50,000 4. Property, Plant and Equipment Freehold property 1,00,000 Plant and machinery 7,50,000 8,50,000 5. Intangible assets Goodwill 60,000 60,000 6. Non-current investments Non-trade investments at cost 2,80,000 2,80,000 Subsequent to approval by court and all interested parties, the following scheme of reconstruction were agreed:- (1) Uncalled capital is to be called up in full and such shares and other fully paid -up equity shares to be reduced to ` 5 per share. (2) The preference shareholders will accept a reduction of ` 2.5 per share, in exchange the rate of dividend is to be increased to 9%. (3) Preference shareholders will forgo their claim of dividend for one year and one equity share of ` 5 each is to be issued for the remaining arrears of dividend. (4) Mr. X holds 10% debentures for ` 2,50,000. He is also a creditor for ` 50,000. He agreed to cancel 50% of his total debt, including interest on debentures, pay ` 20,000 to the company and to receive new 12% debentures for the balance amount. (5) The remaining claim of the debenture holders, including outstanding interest to be reduced to 60%. In consideration of the reduction, the debenture holders are to receive new 9% preference shares at new face value. (6) The taxation liability is to be settled at ` 1,20,000. (7) Market value of Non-current Investments is ` 2,50,000. Investments to be brought to their market value. (8) Inventory equal to ` 1,00,000 at book value will be taken over by remaining creditors in full settlement of their claim. (9) A bad debt provision of 2% is to be created on trade receivables. (10) Plant and Machinery is to be written down by 20%. (11) The company will further issue 12% debentures for such amount which is sufficient to pay off bank overdraft and other outstanding liabilities and maintain its cash/bank balance at ` 85,000. (12) The amount available by the scheme shall be utilized in writing of Goodwill, debit balance of profit and loss a/c and balance of inventory. You are required to: (a) Show the journal entries, necessary to record the above transaction in the company’s books and (b) Prepare a note to show revised Share capital structure of the company after completion of the scheme. (14 Marks)