Eben Ltd found itself in financial difficulty. The following is a trial balance at 31st December, 2020 extracted from the books of the company.

GH¢

• Land: 156,000
• Building (net): 27,000
• Equipment (net): 11,000
• Goodwill: 60,000
• Investment in shares, quoted: 27,000
• Inventory and work in progress: 120,000
• Trade receivables: 70,000
• Income Surplus: 40,000
• Total: 511,900
• Ordinary shares issued at ¢1 each: 200,000
• 5% Cumulative preference shares of ¢1 each: 70,000
• 8% Debenture: 80,000
• Interest payable on debenture: 13,000
• Trade Payables: 96,000
• Loans from directors: 16,000
• Bank Overdraft: 36,000
• Total: 511,000

The authorised share capital is 200,000 ordinary shares of no par value and 100,000 5% cumulative preference shares of no par value.

During a meeting of shareholders and directors, it was decided to carry out a scheme of internal reconstruction. The following scheme has been agreed:

1. The existing 70,000 preference shares are to be exchanged for a new issue of 30,000 8% cumulative preference shares and 40,000 ordinary shares, both issued at GHC 1.00 each.
2. The ordinary shareholders (existing before the reconstruction scheme) are to accept a reduction of 50% of their shareholdings. They are also to subscribe for a rights issue on the basis of 1 for 1 (after the reduction of shareholding) at a price of GHC 1.00 per share.
3. The debenture holders are to accept 5,000 ordinary shares credited as to GHC 1.00 each in full settlement of the interest payable. Post reconstruction, the debenture interest rate is to be increased to 10%. A further GH¢ 20,000 of the 10% debenture is to be issued at a discount of 2% and taken up by the existing holders.
4. GH¢ 6,000 of directors’ loan is to be cancelled. The balance is to be settled by the issue of 10,000 ordinary shares credited as to GHC 1.00 per share.
5. Goodwill and the income surplus deficit are to be written off.
6. The investment in shares is to be sold at the current market price of GH¢ 50,000.
7. The bank overdraft is to be repaid.
8. GH¢ 46,000 is to be paid to trade creditors (trade payables) now and the balance to be deferred to the third quarter of the year 2022.
9. 10% of the trade receivables are to be considered irrecoverable.
10. The remaining assets were professionally valued and should be included in the books and accounts as follows:

• GHC Land: 166,000
• Building: 60,000
• Equipment: 10,000
• Inventory and work in progress: 50,000

1. Reconstruction expenses are expected to be GH¢ 1,600.
2. It is expected that due to changed conditions and new management, operating profits will be earned at the rate of GH¢ 50,000 per annum after depreciation but before interest and tax. Due to losses brought forward and capital allowance, it is unlikely that any tax liability will arise until 2023.

Required:

a. Write up the following ledger accounts: Capital Reduction; Cash; and Ordinary Shares.

b. Prepare the statement of financial position of the company immediately after the reconstruction.

c. Comment on the acceptability or otherwise of the proposed scheme from the point of view of the ordinary shareholders (supported by appropriate calculations).