Internal Reconstruction Theory: Financial restructuring of a company without its liquidation is known as “Internal Reconstruction”. Section 100 of Companies Act, allows sick companies to implement the scheme of internal reconstruction resulting in to reduction of capital. For implementing such a scheme a separate account called Reduction Account” is opened. “Capital This account is a nominal account which takes on credit side all income and profits and on debit side all expenses and losses. At the end, Capital Reduction Account either tallies or it credit balance which is transferred to Reserve A/c”. “Capital The scheme of Internal Reconstruction is implemented by sick company suffering from huge losses over past few but not interested in closing down or liquidating its business. Directors of such company decides the quantum of loss on account of- Profit & Loss Account Debit Balance. Fictitious & Intangible assets like preliminary expenses, deferred revenue expenditure, goodwill, patent etc. Contingent liabilities like arrears of cumulative preference dividend and liability for damages. Over valuation of fixed and current assets. Problem-1 Following is Balance Sheet of ABC Ltd. as on 31st March 2000. Liabilities (Rs.) Assets (Rs.) 20000 Equity Shares of Rs.10 Land & Building 100000 each 200000 10000 Preference Shares of Other Fixed Assets 100000 Rs.10 each 100000 1000 8% Debentures of Current Asset 35000 Rs.100 each 100000 Creditors 50000 Profit & Loss Account 215000 450000 450000
Internal Reconstruction Theory: Financial restructuring of a company without its liquidation is known as “Internal Reconstruction”. Section 100 of Companies Act, allows sick companies to implement the scheme of internal reconstruction resulting in to reduction of capital. For implementing such a scheme a separate account called “Capital Reduction Account” is opened. This account is a nominal account which takes on credit side all income and profits and on debit side all expenses and losses. At the end, Capital Reduction Account either tallies or it credit balance which is transferred to “Capital Reserve A/c”. The scheme of Internal Reconstruction is implemented by sick company suffering from huge losses over past few but not interested in closing down or liquidating its business. Directors of such company decides the quantum of loss on account of- Profit & Loss Account Debit Balance. Fictitious & Intangible assets like preliminary expenses, deferred revenue expenditure, goodwill, patent etc. Contingent liabilities like arrears of cumulative preference dividend and liability for damages. Over valuation of fixed and current assets. Problem-1 Following is Balance Sheet of ABC Ltd. as on 31st March 2000. Liabilities (Rs.) Assets (Rs.) 20000 Equity Shares of Rs.10 each 200000 Land & Building 100000 10000 Preference Shares of Rs.10 each 100000 Other Fixed Assets 100000 1000 8% Debentures of Rs.100 each 100000 Current Asset 35000 Creditors 50000 Profit & Loss Account 215000 450000 450000
InternalReconstruction.docx