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Chapter 4 - Capital Reduction, Reorganization and Reconstruction - Coggle…
Chapter 4 - Capital Reduction, Reorganization and Reconstruction
Introduction
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• The contingent and prospective liabilities will consider while determining whether the company can pay its debts.
Role of Liquidator
Why is a liquidator is appointed?
A liquidator is appointed to regularize the affairs of the company.
Who appoints a liquidator?
The members, creditors or the courts will appoint a liquidator.
Duties of a liquidator:
• Investigate the company’s operations.
• Identify and sell the company’s unsecured assets to pay off the debts.
• Any surplus should be distributed to the members.
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Reconstruction
Definition:
• the process of reorganizing a company's legal, operational, ownership, and other structures.
• more drastic and is carried out once the financial position of a company has weakened severely.
What is said reconstruction/ reorganization exercise?
The company's assets should be revalued properly.
Why is reconstruction exercise?
• Reconstruction usually done to eliminate any debit balances on the profit and loss account.
Reconstruction Account
DEBIT
• A decrease in asset's value
• A adverse (negative) profit and loss account balance
• The creation of liabilities
CREDIT
• A decrease in liabilities
• An increase in the asset value
• A positive profit and loss account balance
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