Reference no: EM133109561
Question - The following information was obtained from the accounting records of Syarikat Prima Sakti Sdn. Bhd. at 31 December 2021. The company's capital reduction scheme has received court approval: The following information was obtained from the accounting records of Syarikat Prima Sakti Sdn. Bhd. at 31 December 2021. The company's capital reduction scheme has received court approval:
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DEBIT(RM)
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KREDIT(RM)
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Accounts payable
|
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105,600
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Directors' loans
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52,800
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Bank overdraft
|
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84,480
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Equity shares (issued at RM1.00 per share)
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1,452,000
|
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5% preference shares (issued at RM1 per share)
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264,000
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Retained earnings
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264,000
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Debenture 8%
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924,000
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|
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Goodwill
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264,000
|
|
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Property
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528,000
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|
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vehicles
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132,000
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Equipment
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92,400
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|
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Investment
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79,200
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|
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Inventories
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105,600
|
|
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Accounts receivable
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79,200
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|
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Cash
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18,480
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|
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2,222,880
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2,222,880
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The court has agreed to the proposed scheme as follows:
1. The value of preference shares is reduced to RM0.60 per share.
2. The value of equity shares is reduced by RM0.70 per share.
3. Preference shareholders will receive two units of equity shares of RM0.30 per share RM1.00 outstanding preference share dividend. Dividends on preference shares are in arrears for 3 years.
4. Retained earnings and goodwill accounts are written off.
5. Inventory with obsolete stock amounting to RM17,600 is eliminated.
6. A total of RM13,200 accounts receivable could not be collected.
7. The property was revalued at RM620,400 and equipment at RM79,200.
8. The investment is sold in cash at a price of RM84,480.
9. The Directors agree to write off their loans by receiving three units of equity shares for every RM0.90 owed.
10. The restructuring cost of RM5,280 is paid in cash.
Required -
a) Prepare a journal entry to record the above capital reduction.
b) Explain TWO (2) conditions that need to be met to enable a company implement a restructuring scheme.
c) Explain with an example for TWO (2) forms of capital reduction that can implemented as provided under Sections 116 and 117 of the Companies Act 2016.