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In internal reconstruction, what is the typical sequence of accounting?
ACancel/reduce capital → credit to Capital Reduction A/c → use to write off accumulated losses / fictitious assets → surplus to Capital Reserve
BDistribute dividend first
CIssue new shares first
DApply to NFRA first
Answer & Solution
Correct answer: A. Cancel/reduce capital → credit to Capital Reduction A/c → use to write off accumulated losses / fictitious assets → surplus to Capital Reserve
1. Step 1: Standard sequence per Ch 14: reduction creates Capital Reduction A/c balance → used to write off losses / intangibles → residual to Capital Reserve.
2. Step 2: This pattern ensures the BS shows true & fair view post-reconstruction.
3. Step 3: Hence (A).
_Source: ICAI BoS CA Inter Paper 1, Ch 14 "Internal Reconstruction"_