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    2279 Chapter 25

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    tinotendazhuwao63
    1) Omicron Ltd redeemed debentures and preference shares, leaving £1900 in fixed assets, £80 in current assets, £1000 in ordinary shares, £800 in capital redemption reserve, £160 in share premium account, and £20 in revenue reserves. 2) Istaimy plc redeemed preference share capital, leaving £1300 in fixed assets, £475 in net current assets, £1300 in ordinary share capital, £200 in capital redemption reserve, £165 in share premium account, and £110 in profit and loss account. 3) Joloss plc underwent a capital reduction, with its balance sheet afterwards showing £500 in fixed assets, £92 in

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    2279 Chapter 25

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    1) Omicron Ltd redeemed debentures and preference shares, leaving £1900 in fixed assets, £80 in current assets, £1000 in ordinary shares, £800 in capital redemption reserve, £160 in share premium account, and £20 in revenue reserves. 2) Istaimy plc redeemed preference share capital, leaving £1300 in fixed assets, £475 in net current assets, £1300 in ordinary share capital, £200 in capital redemption reserve, £165 in share premium account, and £110 in profit and loss account. 3) Joloss plc underwent a capital reduction, with its balance sheet afterwards showing £500 in fixed assets, £92 in

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    1) Omicron Ltd redeemed debentures and preference shares, leaving £1900 in fixed assets, £80 in current assets, £1000 in ordinary shares, £800 in capital redemption reserve, £160 in share premium account, and £20 in revenue reserves. 2) Istaimy plc redeemed preference share capital, leaving £1300 in fixed assets, £475 in net current assets, £1300 in ordinary share capital, £200 in capital redemption reserve, £165 in share premium account, and £110 in profit and loss account. 3) Joloss plc underwent a capital reduction, with its balance sheet afterwards showing £500 in fixed assets, £92 in

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    9 views1 page

    2279 Chapter 25

    Uploaded by

    tinotendazhuwao63
    1) Omicron Ltd redeemed debentures and preference shares, leaving £1900 in fixed assets, £80 in current assets, £1000 in ordinary shares, £800 in capital redemption reserve, £160 in share premium account, and £20 in revenue reserves. 2) Istaimy plc redeemed preference share capital, leaving £1300 in fixed assets, £475 in net current assets, £1300 in ordinary share capital, £200 in capital redemption reserve, £165 in share premium account, and £110 in profit and loss account. 3) Joloss plc underwent a capital reduction, with its balance sheet afterwards showing £500 in fixed assets, £92 in

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    Chapter 25 Limited companies: more about share capital and debentures; capital reductions and

    reconstructions
    Q1 Omicron Ltd

    Balance Sheet at 1 January 2003 after the redemption of debentures and preference shares
    $
    Fixed assets 1900
    Current assets 80
    1980

    Ordinary shares of $1 1000


    Capital Redemption Reserve 800
    Share Premium account 160
    Revenue reserves 20
    1980

    Q2 Istaimy plc

    Balance Sheet at 1 May 2001 after redemption of the preference share capital
    $000
    Tangible fixed assets 1300
    Net current assets (740 + 125 – 390) 475
    1775

    Ordinary share capital (1200 + 100) 1300


    Capital Redemption Reserve 200
    Share Premium (200 + 25 – 60) 165
    Profit and Loss Account (340 – 200 – 30) 110
    1775

    Q3 Joloss plc

    (i) Balance Sheet immediately after capital reduction on 1 May 2002


    $000 $000
    Tangible fixed assets 500
    Current assets
    Stock 22
    Debtors 64
    Bank 6
    92
    Creditors: amounts falling due
    within one year 42 50
    550
    Ordinary shares of $0.55 550

    (ii) The net asset value of Joloss plc’s shares before capital reduction was (1000 – 450)/ 1000 = $0.55.
    The capital reduction merely recognises the reality of the situation.
    Reduction in the nominal value of each share does not entail any further loss to the shareholders. The
    shareholders will stand to receive dividends equal to $0.25 per share as soon as the company realises the profits
    forecast by the directors. If the shareholders had rejected the scheme, they would have had to wait more than
    three years before the expected profits would have eliminated the debit balance on the Profit and Loss Account
    to enable dividends to be paid. (Other points may be acceptable.)

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