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the chairman of the company agreed to advance the sum of rs 50 000 to be secured by 621969

The balance sheet of Rita Ltd. as on 31 March 2011 was as follows:

Liabilities

Assets

Share Capital:

Goodwill

15,000

issued &

Land & Buildings

75,000

Subscribed

Plant &

2,30,000

Capital:

Machinery

5,000 Pref. Shares

5,00,000

Patents

25,000

of Z 100 Each

Stock

1,48,000

Fully Paid

Sundry Debtors

2,52,000

7,500 Equity

3,75,000

P&L A/c

2,55,000

Shares of Z 50

Each Fully Paid

Bank Loan

22,000

Secured on Land

& Building

Sundry Creditors

1,03,000

1,03,000

1,00,000

1,00,000

The preference share dividends are in arrears since 2007. The company passed a special resolution to reduce its capital and the following scheme was sanctioned by the Court.

  1. The preference shares to be reduced to Rs.75 each fully paid and the arrears of dividend to be cancelled.
  2. The equity shares to be reduced to Rs.25 each fully paid.
  3. The debit balance on P&L A/c and goodwill to be written off. Plant & machinery to be reduced by Rs.20,000; of the book debts, Rs.12,000 known to be bad to be written off, available balance to be used for writing down patents.

The chairman of the company agreed to advance the sum of Rs.50,000 to be secured by a mortgage at 5% p.a. on land & buildings. The cash is to be applied in paying off the bank loan and providing additional working capital.

Pass journal entries giving effect to the above scheme and prepare the revised balance sheet of the company.

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