The chairman of Hello Kitty Ltd needs to obtain the consent of the shareholders to a...
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The chairman of Hello Kitty Ltd needs to obtain the consent of the shareholders to a reduction of capital. The summarised statement of financial position of Hello Kitty Ltd at 30 September 2020 was as follows: Goodwill Tangible fixed assets Net current assets Ordinary shares of $1 Profit and Loss Account $000 50 1 300 725 2 075 3 4 2 500 (425) 2 075 Further information: The company has not paid a dividend for the past few years. The directors are aware of the following matters: 1 Goodwill is now valueless. 2 The freehold premises have developed a structural fault and must now be written down by $225 000. Stock has been damaged by flooding and must be written down by $20 000. A major debtor owing $30 000 is in financial difficulties and is unlikely to pay. The company has secured a number of new, long-term profitable contracts and the directors are confident that in future the company will make annual profits of at least $70 000. The directors propose a scheme of capital reconstruction which will enable them to write off the debit balance on the Profit and Loss Account and adjust the accounts for items numbered 1 to 4 above. The scheme will not result in a change in the number of shares that have been issued. The directors are confident that the capital reconstruction will enable them to commence paying annual dividends of $50 000 in the year ending 30 September 2020. The current rate of interest on money invested outside the business is 2.8%. REQUIRED (b) Prepare the Statement of Financial Position as it appears after the scheme of capital reduction has been implemented. [7] The chairman of Hello Kitty Ltd needs to obtain the consent of the shareholders to a reduction of capital. The summarised statement of financial position of Hello Kitty Ltd at 30 September 2020 was as follows: Goodwill Tangible fixed assets Net current assets Ordinary shares of $1 Profit and Loss Account $000 50 1 300 725 2 075 3 4 2 500 (425) 2 075 Further information: The company has not paid a dividend for the past few years. The directors are aware of the following matters: 1 Goodwill is now valueless. 2 The freehold premises have developed a structural fault and must now be written down by $225 000. Stock has been damaged by flooding and must be written down by $20 000. A major debtor owing $30 000 is in financial difficulties and is unlikely to pay. The company has secured a number of new, long-term profitable contracts and the directors are confident that in future the company will make annual profits of at least $70 000. The directors propose a scheme of capital reconstruction which will enable them to write off the debit balance on the Profit and Loss Account and adjust the accounts for items numbered 1 to 4 above. The scheme will not result in a change in the number of shares that have been issued. The directors are confident that the capital reconstruction will enable them to commence paying annual dividends of $50 000 in the year ending 30 September 2020. The current rate of interest on money invested outside the business is 2.8%. REQUIRED (b) Prepare the Statement of Financial Position as it appears after the scheme of capital reduction has been implemented. [7]
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