The following steps are taken into consideration for drafting a scheme, in brief: 1. Losses to be written off are to be determined by adding accumulated losses, fictitious assets, overvaluation of assets, under-provision of liabilities, preliminary expenses etc. The total amount of losses to be written off is thus determined and is reduced from the profit on revaluation of assets [...]
In this article we will discuss about the accounting treatment for disposal of capital reduction account, explained with the help of a suitable illustration. The Capital Reduction Account is a temporary account opened in order to carry out the internal reconstruction. When the scheme is carried out, the account is closed. The Capital Reduction Account represents the sacrifice made by [...]
The need for reconstruction arises when a company has accumulated losses or when a company finds itself overcapitalized which means either that the value placed on assets is too much as compared to their earning capacity or that the profits as a whole are insufficient to pay a proper dividend. In the previous section, the legal position and entries in [...]