a) total value of asset

land and building

plant and machinery
other tangible asset
receivable account
inventories
cash in hand

as going concern
put into liquidation
670 000
670 000
330 000
280 000
142 000
128 000
57 600
42 500
60 000
52 000
15 000
15 000
1 274 600
1 187 500

total asset as going concer is higher than total asset available.

if the company put iinto liquidation the asset distributedd as follows :
total asset available
less:
debenture
secured account payable
unsecured account payable
preference share
deficit to PSH/OSH

1 274 600
(700 000)
(120 000)
(120 000)
(800 000) * (800-466)/800 = 41.75%
(466 000)

if the company is liquidated, the asset are not sufficient to pay off the shareholder.
the preference shareholder may expected to agree on reconstruction scheme.
Since asset on liquidation only cover 41.75% of total claim.
a capital reconstruction scheme is more for the benefit of all the parties.

800 = 41.75%

b) total loss to write off

retained losses
preference share dividend (2year)
land and building
plant and machinery (330-360)
other tangible asset
receivable account
preliminary expense
inventories
cost of construction
patent and trademark
goodwill

(2 075 000)
(96 000)
590 000
(30 000)
(126 000)
(14 400)
(30 000)
(15 000)
(21 800)
(200 000)
(170 000)

total accumulated loss

(2 188 200)

c) reduction in claimed
p/s dividendn in arrears
bank overdraft
secured creditor
debenture
unsecured creditor
PSH
OSH
share premium
total losses
capital reserve

amount
96 000
480 000
120 000
700 000
120 000
800 000
1 500 000
40 000

reduction%
100%
100%
58%
98%
100%

2 075 000)

2 188 200)

amount
96 000
120 000
464 000
1 470 000
40 000
2 190 000
2 188 200
1 800

d) capital reconstruction proposal

1. the ordinary shares were to be written off by 98% (RM0.98) .
and then to be consolidated back to original par value.
2. the preference shares are to be written off by 58% and to be replaced with 30 000 o/s
of RM1 each. And p/s dividend in arrears to be write off.
3. the goodwill and accumulated losses 100% are to be written off.
4. the cost of construction amounteed to RM 21 800
5. the following cost were revalued :
land and building
plant and machinery
other tangible asset
receivable account
inventories

1 500 000
330 000
142 000
57 600
60 000

6. the preference share dividend will be increase to9%

7.the debenture interest and the debit balance of profit and loss account is to write off
8. the company had issued 141 800 unit ordinary shares of RM1 each to cover
the reconstruction cost and claim

e)statement of financial position after reconstruction

30 000 o/s

171 800
o/s of RM1 (30 + 21.8 + 120)
336 000
9% p/s of RM1
capital reserve
CURRENT LIABILITIES
debenture interest
secured creditor
bank overdraft
reconstruction cost
accrued expense
NON CURRENT LIABILITIES
debenture
long term loan

CURRENT ASSET
inventories
account receivable
cash in hand (15 + 21.8 + 120)
NON CURRENT ASSET
land and building
plant and machinery
other tangible asset

171 800
336 000
1 800

40 000
120 000
480 000
21 800
25 000

700 000
350 000
2 246 400

60 000
57 600

1 500 000
330 000
142 000
2 246 400

e) gearing ratio
capital employed

before

after

OSC
PSC
profit and loss (debit)
capital reserve
share premium
10 % debenture
Long term loan
capital employed

1 500 000
800 000
(2 075 000)

171 800
336 000

40 000
700 000
350 000
1 315 000

700 000
350 000
1 559 600

Gearing ratio

1 150 000
1 315 000
0.87

686 000
1 559 600
0.44

1 800

as a result of the reconstruction scheme, the level of gearing of the company has
significantly decrease from 87% to 44%. The company has now become less risky
compare before the time of reconstruction. However, the company should improve its
performance in the future in order to reward their shareholders who may made a large
sacrifice for the survival of the company.

de a large