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QUESTION 1 (25 MARKS) AEJ Bhd

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QUESTION 1 (25 MARKS) AEJ Bhd. has suffered from accumulated lost

for the past three years. The management of AEJ Bhd. was advised to undertake a capital reconstruction scheme in order to turn around the company. The Statement of Financial Position of the company as at 30 April 2020 showed the following balances:
RM
RM
Non Current Assets
Freehold land and building
500,000
Plant and machinery
150,000
Patent and trademark
160,000
Research and development cost
55,500
Quoted investment
50,000
915,500
Current Assets
Inventories
90,000
Account receivables
36,000
Cash and cash equivalent
64,000
190,000
Total Assets
1,105,500
Equity and Reserves
Ordinary Shares at RM1 each
500,000
2% Preference shares at RM0.50 each
200,000
General reserves
331,000
Retained earnings
(195,500)
835,500
Non Current Liabilities
Bank loan
100,000
Current Liabilities
Account payables
160,000
Short term borrowings
10,000
170,000
Total Equities and Liabilities
1,105,500
Notes:
i. Preference dividends were in arrears for two years.
ii. There is contingent liabilities of RM24,000.
FBA/PAS2313/APRIL20
CONFIDENTIAL/3
Having satisfied the legal requirements, a scheme of capital reduction was put into effect as follows:
1. The ordinary shares were to be replaced with a fresh issue of new ordinary shares at RM0.25 each and the preference shares were to be replaced with 3% preference shares of RM0.35 each.
2. The preference shareholders agreed to waive two third (2/3) of the preference dividend in arrears. They are willing to accept new ordinary shares for the balance.
3. The intangible assets and adverse profit and loss are to be written off.
4. RM16,300 of the general reserves is to be utilized for the scheme.
5. The assets are to revalued as follows:
Plant and machinery
RM120,000
Inventories
RM40,000
Account receivables
RM20,000
6. The investment is disposed at a profit of 60%. This proceed will be used to settle full amount of short term borrowings.
7. The creditors agreed to settle their accounts by accepting RM0.75 for every RM1 owed.
8. RM10,000 of the contingent liability is materialized, and AEJ Bhd. is responsible to settle this amount.
9. The company incurred RM4,000 for the reconstruction cost.
10. A special resolution was passed to restore the authorized share capital in ordinary shares of RM1 each and 3% preference shares of RM0.50 each with new par value.
Required:
a. Prepare journal entries to record the above transactions.
(14 marks)
b. Prepare the Statement of Financial Position immediately after the completion of the reconstruction scheme. (Show all the workings)