Question

1. In the context of post-merger reorganisation: Assume that you are the Management Accountant reporting to the Finance Director of a public limited company. The Finance Director recently undertook a financial review as part of the company’s strategic review process. In his report, he observed that the company has more funds than are necessary to support its planned growth and that the company’s capital should be reduced. You are required to write a report outlining four methods which might be adopted company.

Answer 1

The capital reduction is the process of lowering a company's investor stakeholder equity through buybacks or scrapping of shares.

Decreasing liability with regards to the unpaid sum in a public company helps in the reduction of capital. Another way in which company's capital can be reduced is through scrapping any paid-up share capital. It is done by canceling any shares which are off course or are unrepresented by accessible assets. Paying off paid-up share capital is in surplus of the company's necessities with or without decreasing liability in shares also applies in the reduction of capital. Similarly, repurchasing some shares from the shareholders is a method. It is done by giving the shareholders a tender proposal requesting them to submit a small part of their shares to the company within a certain period.