Question

The preference shareholders agree to forego arrears of preference dividend of 72,000. The
amount transferred to Capital Reduction Account is........​

Answer 1

Answer:  The amount transferred to Capital Reduction Account is 72,000

Definition of Capital Reduction Account:

It is a temporary account to carry out internal reconstruction of a company.

It shows the sacrifices made by the shareholders, debenture holders and creditors regarding interest, dividends etc.'

Whenever the internal reconstruction is completed, the closing amount is reduced from the capital.

Explanation:

Preference shareholders are sacrificing their arrear dividend, the entire amount will be transferred to Capital Reduction Account.

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Answer 2

Answer: The amount transferred to Capital Reduction Account is 72,000

Explanation -

What is Capital Reduction Account?

Capital Reduction/Reconstruction Account is used for lowering percentage capital, paying/waiving off liabilities or revaluation of belongings as a way to write off pointless gadgets inclusive of P/L (Dr), Goodwill, Fictitious belongings etc.

What type of account is capital reduction?

1. A capital discount account is a transient account open simply to perform inner reconstruction.
2. It represents the sacrifices made with the aid of using the shareholders, debenture holders and creditors. Also, any appreciation withinside the cost of belongings is credited to this account.

For example - if the stocks of face cost of INR one hundred every completely paid-up is represented with the aid of using Rs. seventy five really well worth of belongings. In one of these case, discount of percentage capital can be effected with the aid of using cancelling Rs. 25 according to percentage and writing off comparable quantity of belongings.

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