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Notes On Internal Reconstruction
Notes On Internal Reconstruction
1. Meaning of Reconstruction :
”Reconstruction of a company means re-organization of financial activities or
affairs of the company when its financial condition or position in not good or
satisfactory. This is accumulated loss and over valuation of assets etc.
Types of Reconstruction
1. External Re-construction
2. Internal Re-construction
1. Internal Re-construction :
It means re-arrangement or re-organization of the financial
activities or financial affairs of the company by re-valuation of its
assets, ascertaining the correct amount of liabilities or writing off the
accumulated losses by reducing the share capital of the company, with
or without changing the rights of share holders but without liquidation
of the company.
2. External Reconstruction:
It means winding up of existing company and transferring the
assets and liabilities at their natural value to new company.
7. If shortfall in Reconstruction account : If there is a short fall i.e the amount required
to be adjusted against Reconstruction a/c is more than the amount standing to the
credit of Reconstruction account, accumulated profit in any form such as General
Reserve, Profit and Loss a/c (Cr) or profit and Loss Appropriation a/c or any unutilized
provision may be used
1.. The words “ And Reduced must be added to the name of the company . This should be continued
for certain accounting period as ordered by the court
2. i) the revised appreciated values of the assets on the date of internal reconstruction
must be shown in the balance sheet. The book values should be ignored.
ii. The amount of increases in the value of assets on account of revaluation should be shown in the
balance sheet.
iii) The revised lower figure i.e original cost-deprecation should be shown instead of book values.
3) i. For fixed assets, and investments, the amount written off should be shown separately for a
period of 5 years.
ii. For current assets and individual the amount written off need not be shown. They should be
shown only at their revised lower values.
iii) For provision such amount of provision should be shown as a deduction from the gross amount
in the inner column and only the net amount in the outer column.