Paper 3 · June 2011 · capital reduction and reconstruction
A company has 800,000 ordinary shares of $1 each in issue. Under a scheme of capital reduction each ordinary share is to be reduced by $0.25. Calculate, in dollars, the amount released to the capital reduction account by the reduction of the ordinary share capital.
Model answer
200000
Also accepted: $200 000, 200 000
Explanation
800,000 shares x $0.25 released on each share = $200,000. The ordinary share capital falls from $800,000 to $600,000, that is 800,000 shares of $0.75 each.
Derived from ZIMSEC Accounting 9197/3 Paper 3 (Case Study), June 2011, Q1