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Internal reconstruction is typically undertaken when:
AA company is making profits and wants to expand
BA company is acquiring another business
CA company wants to issue bonus shares
DA company has been making continuous losses, balance sheet is over-capitalised, and reorganisation is needed without winding up
Answer & Solution
Correct answer: D. A company has been making continuous losses, balance sheet is over-capitalised, and reorganisation is needed without winding up
1. Step 1: Per Ch 14, internal reconstruction "is a process by which affairs of a company are reorganized by revaluation of assets, reassessment of liabilities and by writing off the losses already suffered, by reducing the paid up value of shares and/or varying the rights attached to different classes of shares".
2. Step 2: Object is to bail out the company without winding up.
3. Step 3: Hence (B).
_Source: ICAI BoS CA Inter Paper 1, Ch 14 "Internal Reconstruction"_