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Internal Reconstruction Interview Questions & Answers - Learning Mode

Internal Reconstruction Interview Questions & Answers - Learning Mode

Internal Reconstruction is an arrangement made by companies whereby the claims of shareholders,creditors and other liabilities are altered/reduced,so that the accumulated losses are written off,assets are valued at its fair value and the Balance Sheet shows the true and fair view of the financial position.

Try Internal Reconstruction Interview Questions & Answers - Exam Mode


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Internal Reconstruction Interview Questions & Answers - Learning Mode
Try Internal Reconstruction Interview Questions & Answers - Exam Mode
Question: State the differences between internal and external reconstruction.

Answer: 1. No new company is formed in case of Internal Reconstruction. A new company is formed in case of External Reconstruction.
2. In case of Internal Reconstruction, no company is liquidated. In case of External Reconstruction one company is liquidated.
3. Internal Reconstruction requires court?s confirmation. But External Reconstruction can be affected without court?s confirmation.
4. Internal Reconstruction is a slow and tedious process. But External Reconstruction can be carried out eas Source:
Question: Give the journal entry for reduction of liability in respect of the uncalled amount on Shares.

Answer: Share Capital A/C( Old Denomination) Dr xxx
To Share Capital A/C (New Denomination) xxx
Question: What is external reconstruction?

Answer: External reconstruction refers to the sale of the business of existing company to another company formed for the purposed. In external reconstruction, one company is liquidated and another new company is formed. The liquidated company is called "Vendor Company" and the new company is called "Purchasing Company". Shareholders of vendor company become the shareholders of purchasing company.
Question: Name the forms of internal reconstruction.

Answer: Internal reconstruction of a company can be carried out in the following different ways. These are as under:
(A) Alteration of Share Capital; and
(B) Reduction in Share Capital. Source:
Question: Mention the ways by which a company can alter share capital.

Answer: A company can alter share capital in any of the following ways:
(a)The company may increase its capital by issuing new shares.
(b)It may consolidate the whole or any part of its share capital into shares of larger amount.
(c)It may convert shares into stock or vice versa.
(d)It may sub-divide the whole or any part of it?s share capital into shares of smaller amount.
(e)It may cancel those shares which have not been taken up and reduce its capital accordingly.
Question: What is internal reconstruction?

Answer: Internal reconstruction refers to the internal re-organization of the financial structure of a company. It is also termed as re-organization which permits the existing company to be continued. Generally, share capital is reduced to write off the past accumulated losses of the company.
Question: Mention the situations which call for internal reconstruction.

Answer: The following situations are generally responsible for the internal reconstruction of a company :
(i)When the capital structure of a company is complex and it is required to make it simple.
(ii)When there are huge accumulated losses and it is required to write off these losses to depict a better position of the company.
(iii)When a part of the capital is not represented by available tangible assets.
(iv)When change is required in the face value of shares of the company so that they c Source:
Question: Mention the options available to a company for the reduction of capital.

Answer: The options available to a company for the reduction of capital are: A company may
(1)extinguish or reduce the liability on any of its shares in respect of share capital not paid- up;
(2)cancel any paid-up share capital which is lost or is unrepresented by any available assets;
(3)pay off any paid-up share capital which is in excess of what is required by the company. Source:


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