CHAPTER 7

7.1 Depression

Capital Reduction Account

RM RM
Accumulated Losses 250,000 Ordinary Share Capital 425,000
Research and Development 110,000
Fixtures and Fittings 30,000
Motor Vehicles 15,000
Inventories 20,000
425,000 425,000

Ordinary Share 425,000 (550,000/500,000 = RM 1.1 – RM0.25 = RM0.85 × 500,000 = 425,000)

Capital Reduction Account 425,000
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Capital Reduction Account 250,000
Accumulated Losses 250,000
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Capital Reduction Account 110,000
Research and Development 110,000
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Capital Reduction Account 30,000
Fixtures and Fittings 30,000
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Capital Reduction Account 15,000
Motor Vehicles 15,000
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Capital Reduction Account 20,000
Inventories 20,000
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Statement of Financial Position

(immediately after the Capital Reduction)
RM
Issued and Paid Up Capital:
500,000 Ordinary Shares 125,000

Non-Current Liabilities
10% Debentures 100,000
Current Liabilities:
Trade Payables 50,000
275,000

Non-Current Assets
Motor Vehicles 65,000
Fixtures and Fittings 120,000
185,000
Inventories 50,000
Trade Receivables 30,000
Prepayments 10,000 90,000
275,000
7.2 Goodwood Property
Debit Credit
RM’000 RM’000

Ordinary Shares 100,000

Capital Reduction 100,000

5% Preference Share Capital 70,000

8% Preference Share Capital 35,000
Ordinary Shares of 50 Sen 35,000

Cash 200,000 Shares × 50 Sen= RM100,000×0.60 60,000

Ordinary Shares 60,000

Interest Payable 12,800

Ordinary Shares 5,000
Capital Reduction 7,800

8% Debentures 80,000
9.5% Debentures 80,000

Cash 8,100 (9,000 × 90%)

9.5% Debentures 8,100

Directors' Loans 16,000

Ordinary Share Capital 10,000
Capital Reduction 6,000

Capital Reduction 79,821

Intangibles 40,000
Retained Losses 39,821

Investments (60-47=13) 13,000

Capital Reduction 13,000

Trade Payables 46,000

Cash 46,000

Capital Reduction 7,298

Trade Receivables 7,298

Capital Reduction 89,681

Building (27,246-50,000) 22,754
Land (200,000-163,566) 36,434
 Equipment(16754-11,000) 5,754
Inventories and WIP(120,247-50,000) 70,247

Asset Revaluation Reserve 50,000

Capital Reduction 50,000

Capital Reduction Account

RM RM
Accumulated Losses 39,821 Ordinary Share Capital 100,000
Intangibles 40,000 Asset Revaluation Reserve 50,000
Land, Building, Equipment 89,681 Directors' Loans 6,000
Trade Receivables 7,298 Investments 13,000
Interest Payable 7,800
176,800 176,800

Statement of Financial Position

(immediately after the Capital Reduction)
RM’000 RM’000
Issued and Paid Up Capital:
Ordinary Shares 210,000
8% Preference Share Capital 35,000
245,000
Non-Current Liabilities
9.5 % Debentures 88,100

Current Liabilities:
Bank Overdraft 36,960
Trade Payables 50,000
Total Liabilities and Equity 420,060

Non-Current Assets
Land (Revalued) 163,566
Building 50,000
Equipment (Revalued) 11,000
224,566
Investments 60,000

Current assets:

Inventories 50,000
Trade Receivables 63,394
Cash 22,100 135,494
Total Assets 420,060

7.3 Yam
 Debit Credit
RM RM

Ordinary Shares (700,000 × 90 Sen) 630,000

Capital Reduction 630,000
(Being Ordinary Shares Written Down to 10 Sen Per Share, Fully
Paid).

Ordinary Shares of 10 Sen (700,000 × 10 Sen) 70,000

Ordinary Shares of RM1 (70,000 × 1 RM =10 Shares × 10 Sen) 70,000

8% Preference Shares 300,000

Ordinary Shares 250,000
Capital Reduction (300,000-250,000) 50,000

Capital Reduction 602,500

Retained Losses 602,500

Capital Reduction 77,500

Land and Building 17,500
Plant and Machinery 50,000
Intangibles 30,000
Inventories 13,000
TR (Provision for Doubtful Debts) 2,000

Capital Reduction Account

RM
Accumulated Losses 602,500 Ordinary Share Capital 630,000
Intangibles 30,000 Preference Shares 50,000
Plant & Machinery 50,000
Provision for Doubtful Debts 2,000 Land and Building 17,500
Inventories 13,000
697,500 697,500

Yam Bhd
Statement of Financial Position
(Immediately after the Capital Reduction)
 RM’000 RM’000

Issued and paid up capital:

Ordinary Shares (70 + 250) 320

Current Liabilities:
Bills Payable 20
Bank Overdraft 55.5
Trade Payables 75 150.5
470.5

Non-Current Assets
Land and Building (Revalued) 217.5
Plant and Machinery 130
Intangibles 20
367.5

Current Assets
Inventories 50
Trade Receivables 53 103
470.5

7.4 Richard

Debit Credit
 RM’000 RM’000
Ordinary Shares 300,000
Capital Reduction 300,000
(Being ordinary shares written down to 25 Sen per share, fully
paid).

Bank 140,000
Ordinary Shares 140,000

6% Preference Shares 100,000

7% Preference Shares RM1× PS 50,000 50,000
Ordinary Shares OS 2 × 25 Sen= RM0.50 × PS100,000/2= 25,000
Capital Reduction 25,000
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Retained Earning 6,000
Cash 6,000

Retained Earning 6,000

Ordinary Share 6,000
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Capital Reduction 2 years × (100,000 ×
6%)=12,000/2= 6,000
Ordinary Shares 6,000
(50% Preference Dividend in Arrear)

Loan From Directors 100,000

5% Debentures 100,000

Capital Reduction 230,000

Intangibles 30,000
Retained Losses 200,000

Capital Reduction 86,700

Land 20,000
Accumulated Depreciation Building 170,000
Accumulated Depreciation Equipment 22,300
Building 200,000
Equipment 84,000
Trade Receivables 5,000
Inventories 10,000

Capital Reduction 1,300

Bank 1,300

Capital Reduction (4,000,000 – 3,000,000) 1,000

Bank 1,000
(Contingent Liability)
 Richard Bhd
Statement of Financial Position
(immediately after the capital reduction)
RM’000 RM’000
Issued and paid up capital:
Ordinary shares 271,000
Preference shares 50,000

Non-current liability
5% debentures 200,000
8% debentures 100,000
Current liabilities:
Bank overdraft 82,700
Trade payables 80,000 162,700
783,700

Non-current assets
Land (revalued) 170,000
Building 300,000
Equipment 46,000
516,000

Current assets
Inventories 70,000
Trade receivables 60,000
Bank 137,700 267,700
783,700

7.5 Champion
Debit Credit
RM million RM million
Bank 60
Ordinary Shares 60

Ordinary Shares 240

Capital Reduction 240

7% Preference Shares 200

Ordinary Shares 160
Capital Reduction 40

Capital Reduction (Contingent Liability) 10

Loan From Directors-50% charged to the director 10
Bank 20

Loan From Directors 70

Ordinary Shares 50
Capital Reduction 20
9% Debentures 100
Land 25
Capital Reduction 15
10% Debentures 60

Land 30
Capital Reduction 30

Capital reduction 335

Retained loss 200
Investment 20
Plant and machinery 90
Inventories 25

Capital Reduction Account (RM Million)

Retained Loss 200 Ordinary Share Capital 240

Contingent Liability 10 Preference Shares 40 50,000
Investment 20 Debenture 15
Plant & Machinery 90 Loan From Directors 20
Inventories 25 Land 30 6,000
13,000
7,800
345 345
 Champion Berhad
Statement of Financial Position
(Immediately after the Capital Reduction)
RM million RM million

Issued and paid up capital:

Ordinary shares 270
Non-current liability
10% debentures 60

Current liabilities:
Bank overdraft 59
Trade payables 48 107
437

Non-current assets
Land 90
Plant and machinery 50
Furniture and fitting (less accumulated depreciation RM5m) 20
160
Investment 80
Current assets
Inventories 85
Bills receivable 20
Trade receivables 52
Bank 40 197
437

7.6 Reduced

Capital Reduction Account 2,030

Development Costs 2,030

Capital Reduction Account 1,470

Inventories 3570 -2100 1,470

Land and Building 2,110

Capital Reduction Account 6,290
Plant and Machinery 7,950
Trade Receivables 450

Ordinary Share Capital 10,270

Capital Reduction Account 10,270

Ordinary Share Capital 200m × 50 Sen 10,000

Ordinary Share Capital 100m × RM1 10,000
Bank 5,000
Ordinary Share Capital 5,000

Debentures 5,000
Ordinary Share Capital 4,000
Capital Reduction Account 1,000

Capital Reduction Account 1,480

Accumulated Losses 1,480

Interest accrued 1,200

Taxation 750
Trade Payable 900
Cash 2,850

Reduced Bhd
Capital Reduction Account
RM’000 RM’000
Accumulated Losses 1,480 Ordinary Share Capital 10,270
Development Costs 2,030 Debentures 1,000
Plant And Machinery 7,950 Land And Building 2,110
Trade Receivables 450
Inventories 1,470
13,380 13,380

Reduced Bhd
Statement of Financial Position
(Immediately after the Capital Reduction)
RM’000 RM’000
Issued and paid up capital:
Ordinary shares 19,000

Current liabilities:
Bank overdraft 1,600
Trade payables 2,700 4,300
23,300

Non-current assets
Land and building 10,270
Plant and machinery 5,000
 15,270

Inventories 3,480
Trade receivables and prepayments 2,400
Bank 2,150 8,030
23,300

7.7 Rough

Capital Reduction and Reorganization Account RMm

Accumulated Losses 75 Ordinary share capital 64
Revaluation reserve 2
Land 9
75 75

Ordinary Share Capital RMm

Capital Reduction 64 Ordinary Share Capital B/D 80
Cash 8
8% Preference Shares 10
Bal. C/D 40 Bank Borrowing 6
104 104

Statement of Financial Position

(Immediately after the Reorganization)
RM’000 RM’000
Issued And Paid Up Capital:
Ordinary Shares 40,000

Current Liabilities:
Trade Payables 1,500
41,500

Non-Current Assets 29,000

Intangible Assets 2,000

Inventories 2,500
Trade receivables 4,000
Bank 4,000 10,500
41,500
7.8 Decline

(a) Decline Company’s Books: Debit Credit

RM RM
Realisation and Reconstruction 150,000
Accumulated Loss 150,000

Realisation and Reconstruction 11,000

Non-Current Assets 14,000
Inventories 20,000
Trade Receivables 5,000

Preference Share 20,000

Ordinary Share (100,000 + 50,000) 150,000
Realisation and Reconstruction 170,000

Realisation and Reconstruction 4,000

Bank Overdraft 4,000

Realisation and Reconstruction 5,000

Debenture 5,000

Closing Decline’s Books:

Ordinary Share 50,000

Preference Share 80,000
Trade Payables 150,000
Bank Overdraft 44,000
Debenture 5,000
Non-Current Assets 244,000
Inventories 60,000
Trade Receivables 25,000

Opening Saidina’s Books:

Non-Current Assets 244,000

Inventories 60,000
Trade Receivables 25,000
Ordinary Share 50,000
Preference Share 80,000
Trade Payables 150,000
Bank Overdraft 44,000
Debenture 5,000
Bank-Saidina 120,000
8% Term Loan 50,000
Ordinary Share Capital 50,000
Preference Share Capital 20,000

Preliminary Expenses 6,000

Bank Overdraft 44,000
Bank-Saidina 50,000

Decline Bhd
Realisation and Reconstruction
RM
Current Assets 110,000 Non-Current Assets 244,000
Non-Current Assets 230,000 Current Assets 85,000
Realization Balance 11,000

Dividends in Arrears 5,000 Ordinary Share Capital 150,000

Accumulated Losses 150,000 Preference Share 20,000
Liquidation Expense 4,000
170,000170,000
 Saidina Bhd
Statement of Financial Position
1.7.x8
RM’000 RM’000

Issued and Paid Up Capital:

Ordinary Shares 100
4% Preference Shares 100

Non-Current Liability
8% Term Loan 50
Debenture 5

Current Liabilities:
Trade Payables 150
405

Non-Current Assets 244

Current Assets
Inventories 60
Trade Receivables 25
Bank 70 155
399
Preliminary Expenses 6
405