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Capital Reconstruction

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Capital Reconstruction

1.1 Definition

Generally, reconstruction can be defined as the process of re-build after the thing being damaged or destroyed.

In accounting, reconstruction of capital, which also known as capital reconstruction can be defined as the plans made by a company for the restructuring of its capital base. Capital reconstruction involves major alterations in the capital base of a company. It is related to the term capital restructuring. In other word, when a company suffered losses for a several years and showed losses in the statements of financial position, company may go for reconstructing.When a company's balance sheet shows huge accumulated losses, heavy fictitious and intangible assets or is in financial difficulties or is to over capitalized, and then the process of reconstruction is restored.

Capital reconstruction also defined as a company gains the agreement of its shareholders and creditors to vary the rights of its members and creditors, by altering the capital structure in a way that allows the existing company to continue in business. In other word, the reconstruction need to be done after approval from the shareholders and creditors in order to continue the existing of the company.

1.2 The objective of reconstruction

There are five objective reconstruction which are (Goyal,): To improve the financial position of the company if the company suffering from heavy losses or is in financial mess or is not in a position to pay the loans To provide a new life to a company as the company able to collect the working capital as its need To protect the company against the evil of over exploitation To change the shareholders' right or/and change the place of business To run the business at a profit

1.3 Type of Reconstruction

After knowing the

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