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Debenture holders agreeing to reduce their claim in internal reconstruction will result in:
ANo accounting impact
BIncrease in equity
CCRR creation
DDecrease in long-term borrowings + corresponding credit to Capital Reduction A/c
Answer & Solution
Correct answer: D. Decrease in long-term borrowings + corresponding credit to Capital Reduction A/c
1. Step 1: Debenture holders' sacrifice reduces the liability side.
2. Step 2: The amount sacrificed is credited to Capital Reduction A/c.
3. Step 3: Hence (A).
_Source: ICAI BoS CA Inter Paper 1, Ch 14 "Internal Reconstruction"_