Reference no: EM132753144
ARISE Co. has suffered operating losses for some time, but is now operating profitably and expects to continue to do so. Current and projected income, however will not be sufficient to eliminate the deficit in the near term. It also appears that plant assets are overstated considering current prices and economic conditions. After receiving permission from the government authorities and approval from shareholders, the board of directors decides to restate the company assets and paid-in capital balances in order to remove the deficit and make possible the declaration of dividends from profitable operations.
A balance sheet for the company just prior to this action is presented:
Current Assets 250,000
P.P.E 1,500,000
Accumulated Depreciation (600,000)
Total 1,150,000
Liabilities 300,000
Ordinary shares, P10 par, 100,000 shares 1,000,000
Share Premium 100,000
Retained Earnings (deficit) (250,000)
Total 1,150,000
Assuming that the quasi reorganization shall be accomplished as follows:
a. Property, plant and equipment are to be reduced to their present fair market value of P800,000
b. Inventories are to be written down by P50,000
C. Unaccrued liabilities shall be recognized at P150,000
d. Ordinary shares are to be reduced to a par value of P5
Problem 1: What is the balance of share premium after the quasi reorganization?