The following is the statement of financial position of Alpha Ltd as on 30 June 20X8:

The following information is relevant:
1. There are contingent liabilities in respect of
(i) A guarantee given to bankers to cover a loan of £30,000 made to the subsidiary and
(ii) Uncalled capital of I0p per share on the holding of 100,000 shares of £I each in the subsidiary.
2. The arrears of preference dividend amount to £106,250.
3. The following capital reconstruction scheme, to take effect as from I July 20X8, has been duly approved and authorised:
(i) The unpaid capital on the ordinary shares to be called up;
(ii) The ordinary shares thereupon to be reduced to shares of 25p each fully paid up by cancelling 75p per share and then each fully paid share of 25p to be subdivided into five shares of 5p each fully paid;
(iii) The holders to surrender three of such 5p shares out of ever y five held for reissue as set out below;
(iv) The 81/2% cumulative preference shares together with all arrears of dividend to be surrendered and cancelled on the basis that the holder of ever y 50 preference shares will pay to Alpha a sum of £30 in cash, and will be issued with;
(a) One £40 convertible 73/4% note of £40 each, and
(b) 60 fully paid ordinary shares of 5p each (being a redistribution of shares surrendered by the ordinary shareholders and referred to in (iii) above);
(v) The unpaid capital on the shares in the subsidiary to be called up and paid by the parent company whose guarantee to the bank should be cancelled;
(vi) The freehold property to be revalued at £55,000;
(vii) The adverse balance on retained earnings to be written off, £55,000 to be written off the shares in the subsidiary and the sums made available by the scheme to be used to write down the plant

Required:
(a) Prepare a capital reduction and reorganization account.
(b) Prepare the statement of financial position of the company as it would appear immediately after completion of thescheme.

Transcribed Image Text:

E000 Cost Accumulated £000 depreciation Non-current assets Freehold property Plant 46 85 131 79 120 Investments Shares in subsidiary company 90 40 ans 130 Current assets Inventory Trade receivables 132 106 238 Current liabilities Trade payables Bank overdraft 282 58 340 Net current liabilities Total assets less liabilities 102 148 Capital and reserves 250,000 8 % cumulative redeemable preference shares of El each fully paid 100,000 ordinary shares of l each 75p paid 250 75 325 Retained earnings 148