CA Inter P1 · Chapter 12 · Question 3 of 8
Case: The Capital Reduction Account of Ishan Ltd shows a credit of ₹30,00,000 under an approved scheme. It is used to write off the debit balance of profit and loss ₹18,00,000, goodwill ₹6,00,000, preliminary expenses ₹2,00,000 and overvaluation of PPE ₹3,00,000. The balance remaining in the Capital Reduction Account should be:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Transferred to Capital Reserve: ₹1,00,000
Explanation
Total write-offs = 18,00,000 + 6,00,000 + 2,00,000 + 3,00,000 = 29,00,000. Balance = 30,00,000 - 29,00,000 = 1,00,000. Since it arises from a reduction of capital, it is a capital profit and is transferred to Capital Reserve; it cannot be credited to revenue or a free reserve.
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