1. large amount of accumulated losses and or

1. some of the assets are overvalued/overstated

1. some of the assets are fictitious

The above illustrates that XYZ Ltd has unwisely eroded its paid up share capital from $600,000 to $50,000.

• continue to be in business and face further erosion of capital vide it continuing trading losses
• wind up its business
• re-organize

By embarking on an internal reconstruction, XYZ Ltd should have the following intention:

• ability to start afresh to regain profitability
• adjust any unrepresented assets
• writing off the accumulated losses by reducing its paid up capital
• subsequently to issue additional shares to raise funds for its new plans.

1. Determine the total amount to be written off
   • the debit balance of the accumulated profit & loss needs to be eliminated
   • overvalued assets need to be written down
   • fictitious assets like preliminary expenses, recorded goodwill, patent, trademarks and other intangible assets need to be written off

1. The rights of the various stakeholders need to be considered

• debenture holders, trade and other creditors
• preference shareholders

3. Ensure that the ordinary shareholder should bear the major brunt of the losses as they are risk takers in the business

4. At the end, ensure that the scheme is equitable to all affected parties.

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