#1 Internal Reconstruction - Concept - Corporate
Accounting
Internal reconstruction is considered to be one of the most difficult chapters in corporate
accounts. Reconstruction means to rebuild or reorganise something that already exists. ABC
Limited is a loss-making company that has been making losses for four years. The
company's balance sheet does not show a true and fair view of its business because its
assets are overvalued. Consultants advised ABC Limited to find a solution to revive their
company. From a loss-making company, it can become a profit-making company. The last
thing that can be done to revive the company is to try to work rewind and rewire the
company.
The first step is the revaluation of liabilities, then the elimination of fictitious assets, wiping
out the accumulated losses, and finally, the reduction in share capital. Negotiating with
creditors and banks to reduce the interest rate is also important. Internal reconstruction is
done to bring the company from a loss-making state to a profit-making state and get it back
on track. This reduces the liabilities, and all stakeholders will benefit in the future. For now,
negotiation is necessary.
#2 Internal Reconstruction - Journal Entries
In this chapter, we are going to see the accounting treatment required for internal
reconstruction. Do not mistake these methods for accounting methods - they are not
accounting methods. These are internal reconstruction methods used to do internal
reconstruction, and there are many methods for altering share capital and reducing capital.
There are lots of methods available, but these are not those methods. Let's now see these
methods. The first method is the alteration of share capital, which includes the subdivision of
shares (splitting the shares), conversion of shares to stock and vice versa, and two types of
preferences - cumulative preference shares and noncumulative preference shares.
If a company is losing money, it may not be able to pay all its dividends together in the fourth
or fifth year, so it may convert them into non-cumulative preference shares. The type of
shares can be changed by negotiating with the shareholders.
Accounting
Internal reconstruction is considered to be one of the most difficult chapters in corporate
accounts. Reconstruction means to rebuild or reorganise something that already exists. ABC
Limited is a loss-making company that has been making losses for four years. The
company's balance sheet does not show a true and fair view of its business because its
assets are overvalued. Consultants advised ABC Limited to find a solution to revive their
company. From a loss-making company, it can become a profit-making company. The last
thing that can be done to revive the company is to try to work rewind and rewire the
company.
The first step is the revaluation of liabilities, then the elimination of fictitious assets, wiping
out the accumulated losses, and finally, the reduction in share capital. Negotiating with
creditors and banks to reduce the interest rate is also important. Internal reconstruction is
done to bring the company from a loss-making state to a profit-making state and get it back
on track. This reduces the liabilities, and all stakeholders will benefit in the future. For now,
negotiation is necessary.
#2 Internal Reconstruction - Journal Entries
In this chapter, we are going to see the accounting treatment required for internal
reconstruction. Do not mistake these methods for accounting methods - they are not
accounting methods. These are internal reconstruction methods used to do internal
reconstruction, and there are many methods for altering share capital and reducing capital.
There are lots of methods available, but these are not those methods. Let's now see these
methods. The first method is the alteration of share capital, which includes the subdivision of
shares (splitting the shares), conversion of shares to stock and vice versa, and two types of
preferences - cumulative preference shares and noncumulative preference shares.
If a company is losing money, it may not be able to pay all its dividends together in the fourth
or fifth year, so it may convert them into non-cumulative preference shares. The type of
shares can be changed by negotiating with the shareholders.
