CA Inter P1 · Chapter 12 · Question 8 of 8
Which of the following best distinguishes internal reconstruction from external reconstruction?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) In internal reconstruction the existing company continues without liquidation, whereas in external reconstruction a new company is formed to take over the business of the existing company, which is liquidated
Explanation
Internal reconstruction reorganises the capital structure of a company, typically by reducing capital and settling with stakeholders, while the company continues as the same legal entity. External reconstruction involves winding up the existing company and transferring its business to a newly formed company, and is accounted for as an amalgamation under AS 14.
More Internal Reconstruction MCQs
- Q2Case: Under a scheme of internal reconstruction, the 5,00,000 fully paid equity shares of ₹10 each of Harit Ltd are reduced to ₹4 each…
- Q3Case: 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…
- Q4Case: Jhanvi Ltd sub-divides its equity shares of ₹10 each into equity shares of ₹1 each, without any change in the total paid-up capital…
- Q5Case: Under a reconstruction scheme of Kiran Ltd, holders of 12% debentures of ₹20,00,000 agree to accept 9% debentures of ₹15,00,000 and…
- Q6Case: Kumud Ltd has cumulative preference dividend in arrears of ₹4,00,000, which has not been recorded in the books. Under its…