Question

Creditors of the company are Rs. 50,00,000 one creditor for Rs. 20,00,000 decided to forego 40% of his claim. He is allotted 30,000 equity shares of Rs. 40 each in full satisfaction. The amount transferred to capital reduction is

Rs. 10,00,000

Rs. 8,00,000

Rs. 5,00,000

Rs. 4,00,000

Answer 1

Answer:

The correct answer is Option D i.e. Rs. 4,00,000.

Explanation:

i) The creditor decided to forego 40% of his total claim i.e. Rs. 20,00,000.

Hence,

Foregone claim = 20,00,000 x 40% = Rs. 8,00,000

ii) In return, he has been allotted 30,000 equity shares. Each share is worth Rs. 40.

Hence,

Total allotted equity in cash = 30,000 x 40 = Rs. 12,00,000

iii) Hence, Reduction in capital value

= 12,00,000 - 8,00,000= Rs. 4,00,000

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