The correct answer is: A. Both 1 and 2
Reconstruction of a company takes place when the company is undercapitalized or has incurred heavy losses which must be written off.
Undercapitalization occurs when a company does not have enough money to meet its financial obligations. This can happen when a company starts out with too little capital, or when it experiences unexpected losses. When a company is undercapitalized, it may not be able to pay its bills, meet its payroll, or invest in new products or services. This can lead to financial problems and even bankruptcy.
Heavy losses can also lead to a company’s financial problems. When a company incurs heavy losses, it must write off these losses on its financial statements. This means that the company’s assets are reduced, and its net worth is decreased. Heavy losses can also make it difficult for a company to obtain financing, as lenders may be reluctant to lend money to a company that is not profitable.
If a company is undercapitalized or has incurred heavy losses, it may need to undergo reconstruction. Reconstruction is a process in which a company’s financial structure is reorganized. This may involve reducing the company’s debt, selling assets, or issuing new shares of stock. The goal of reconstruction is to improve the company’s financial position and make it more viable.
Reconstruction can be a complex and time-consuming process. However, it can be a successful way to save a company that is in financial trouble.