Reference no: EM131182034

The following is the summarized balance sheet of Tabu Ltd. at 30 June 2002

	Sh.'000'	Sh.'000'	Sh.'000'
Non-current assets: Tangible:  Freehold property                   Plant Intangible: Patents                     Goodwill Current assets:    Stock    Debtors    Investments (market value Sh.25 million)    Deferred advertising Current liabilities:    Bank overdraft    Creditors    Debenture interest payable    Accruals    Directors loans Financed by: Share capital:   6% 8 million cumulative preference shares of Sh.10 each.    15 million ordinary shares of Sh.10 each. Revenue reserves:   Profit and loss account   Shareholders account Non-current liabilities:    6% Debentures	39,000 50,000 4,500 10,000 20,000	10,500 28,000 85,000 97,000 11,000 20,000 213,000 (123,500)	85,000 10,000 95,000 38,500 133,500 89,500 223,000 80,000 150,000 230,000 (82,000) 148,000 75,000 223,600

The court approved a scheme of re-organization submitted by the debenture holders and agreed upon by other interested parties to take effect on 1 July 2002 as follows:

The preference shares to be written down to Sh.7.50 each and the ordinary shares to Sh.2.00 each; each class of shares then to be consolidated into shares of Sh.10 each. The rate of dividend on preference shares to be increased to 10%.

The preference dividends are four years in arrears of which three-quarters are to be waived and ordinary shares are to be allocated at par for the balance.

The debenture holders to have their interest paid in cash, to take over freehold property (book value Sh.20 million) at a valuation of Sh.24 million in part repayment of their holding and to provide additional cash capital of Sh.26 million  secured by a floating charge on the company's assets at an interest rate of Sh.12% per annum.

Patents, goodwill and deferred advertising to be written off, Sh.15 million to be written off stock, Sh.11.7 million to be provided for bad debts and the remaining freehold properties to be revalued at Sh.77.5 million.

Investments to be realized.

The directors to accept settlement of their loans as to 90% thereof by allotment of ordinary shares at par and as to 5% in cash, the balance of 5% being waived.

The trade creditors to be paid Sh.0.10 in every shilling to maintain and obtain an extension of the credit period.

The bank has sanctioned an overdraft limit of Sh.10 million to provide working capital.

There are capital commitments amounting to Sh.75 million which are to be canceled on payment of 3¹/₃ % of the contract price as a penalty.

The authorized capital was restored to its original amount.

Required:

(a). The capital reduction account to record the scheme of capital re-organization.

(b). The balance sheet of Tabu Limited as at 1 July 2002 immediately after affecting the scheme.