ILLUSTRATION 2. RNR Ltd. decided to have internal reconstruction. The Balance Sheet of the Company as on 31st March, 2016 was as follows: I. Equity and Liabilities (1) Shareholders' Funds (a) Share Capital : Authorised, Isued and Subscribed : 25,000 Equity Shares of 10 each 10,000 10% Cumulative Preference Shares of 10 each (b) Reserves and Surplus: Securities Premium Reserve A/e Surplus Account (Dr. Balance) 2,50,000 1,00,000 25,000 (-) 1,30,000 (2) Non-current Liabilities 10% 800 Debentures of 100 each (Secured on Freehold Property) 80,000 (3) Current Liabilities Creditors for Goods Creditors for Expenses Interest Accrued on Debentures 30,000 11,000 4,000 Total Equity and Liabilities 3,70,000 II. Assets (1) Non-current Assets (a) Fixed Assets Freehold Property Leasehold Property Plant & Machinery Intangible Asset : Goodwill 75,000 1,00,000 60,000 50,000 25,000 60,000 (b) Investments (2) Current Assets 3,70,000 Total Assets As per new Schedule IIl it should be negative balance or Dr. Balance of Surplus A/c. Preference dividends are in arrears for 2 years. A scheme for reduction of capital was sanctioned by the court as follows: 10% cumulative preference shares of $ 10 each to be reduced to $ 8 per share. Equity shares of $ 10 s of each to be reduced to $ 4 per share. After reduction, the shares are to be consolidated into shares of $ 10. The authorised capital to be restored to $ 1,00,000 in 10% cumulative preference shares of $ 10 each and $ 2,50,000 in equity shares of $ 10 each. One (new) equity share of $ 10 each is to be issued for every $ 40 of gross preference dividend in arrears. The debenture holders agreed to take over the freehold property at $ 1,30,000 and paid the balance to the company after satisfying their claim. Fictitious and intangible assets are to be written off. The value of assets are to be as follows: Leasehold Property $ 80,000 Plant and Machinery $ 50,000 Current Assets $ 40,000 Investments realised $ 10,000. Securities Premium Reserve Account balance is allowed to be utilised. The scheme as sanctioned by the court was implemented. Required : (i) Journal entries for reduction of share capital and consolidation of preference shares and equity shares.(ii) Capital Reduction Account.