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Causes of Reduction in Share Capital

(1) When the capital is more – When the amount of capital in the business is more than the requirements, then it can be reduced.

(2) In case of large business loss – When the company is incurring large amount of loss, it may reduce its share capital for the purpose of correcting the annual accounts.

 

(3) Writing off fictitious assets – When the balance of fictitious assets has become in excess in the balance sheet of the company, due to which the balance does not appear more effective and good, then the company can write off these fictitious assets by reducing the capital.

 

(4) On showing the assets at a higher value – When the fixed assets of the company are at a higher value, they can be corrected by reducing the capital.

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