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If shareholders surrender their shares for cancellation under internal reconstruction:
ASurrendered shares are treated as cancelled, balance to Capital Reduction A/c
BSurrendered shares are reissued at premium without further authority
CSurrendered shares automatically become treasury shares
DNo accounting entries needed
Answer & Solution
Correct answer: A. Surrendered shares are treated as cancelled, balance to Capital Reduction A/c
1. Step 1: Surrender of shares is effectively a cancellation; the capital is reduced.
2. Step 2: Balance is credited to Capital Reduction A/c for absorption of losses.
3. Step 3: Hence (B).
_Source: ICAI BoS CA Inter Paper 1, Ch 14 "Internal Reconstruction"_