liquidation accounting

7/28/2019 Liquidation accounting

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Liquidation

2. The following particulars were extracted from the book of X Ltd. on 1st April, 2001 on which

day a winding up order was made :-

Equity Share Capital :

20,000 shares of Rs. 10 each, Rs. 5 paid up ---------------------------------- 1,00,000

14% Preference Share Capital:

20,000 shares of Rs. 10 each, fully paid -------------------------------------- 2,00,000

14% First Mortgage Debentures, secured by a floating charge

Upon the whole of the assets of the company, exclusive of

the uncalled capital -------------------------------------------------------------- 1,50,000

Fully Secured Creditors (values of securities, Rs. 35,000) ------------------- 30,000

Partly Secured Creditors (values of securities, Rs. 10,000) ------------------ 20,000

Preferential creditors for rates, taxes, wages, etc. ----------------------------- 6,000

Bills Payable ------------------------------------------------------------------------- 1,00,000

Unsecured Creditors ---------------------------------------------------------------- 70,000

Bank Overdraft ---------------------------------------------------------------------- 10,000

Bills Receivable in hand ----------------------------------------------------------- 15,000

Bills Discounted (one bill for Rs. 10,000 known to be bad) ---------------- 40,000

Book Debts – Good ----------------------------------------------------------------- 10,000

- Doubtful (estimated to produce 50%) ---------------------------------- 7,000

- Bad --------------------------------------------------------------------------- 6,000

Land & Building (estimated to produce Rs. 1,00,000) --------------------- 1,50,000

Stock in Trade (estimated to produce Rs. 40,000) -------------------------- 50,000

Machinery, Tools, etc. (estimated to produce Rs. 2,000) ------------------ 5,000

Cash in hand ----------------------------------------------------------------------- 100

Make out (1) Statement of affairs as regards creditors and contributories, and (2) Deficiency

Account,

(Deficiency as regards creditors, contributories, Rs. 1,80,400 and Rs. 4,80, 400 respectively)

Hint: Prepare Balance Sheet; excess of liabilities and capital over assets, Rs. 3,79,900.

3. The following information was extracted from the books of a limited company on 31st

March, 2001 on which date a winding up order was made-

Rs.

Equity Share Capital:

2,00,000 shares of Rs. 10 each ----------------------------------------- ----- 20,00,000

14% Preference Share Capital :

3,00,000 shares of Rs. 10 each ---------------------------------------------- 30,00,000

Calls in arrear (estimated to produce Rs. 20,000) --------------------------- 40,000

14% First Mortgage Debentures secured by a floating charge on the

whole of the assets of the company (interest paid to date) ------------ 20,00,000



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Creditors fully secured (value of securities, Rs. 4,00,000) ---------------- 3,50,000

Creditors partly secured (value of securities, Rs. 2,00,000) --------------- 4,00,000

Preferential creditors for wages, rates and taxes, etc. ---------------------- 75,000

Unsecured Creditors ------------------------------------------------------------- 27,00,000

Bank Overdraft, secured by a second charge on the whole of the assets

Of the company --------------------------------------------------------------- 2,00,000Cash in hand ---------------------------------------------------------------------- 12,000

Books Debts – Good -------------------------------------------------------------- 3,80,000

- Doubtful (estimated to produce Rs. 30,000) ------------------------- 80,000

- Bad -------------------------------------------------------------------------- 45,000

Stock in Trade (estimated to produce Rs. 6,00,000) ----------------------- 7,20,000

Freehold Land & Buildings (estimated to produce Rs. 18,50,000) ------ 21,00,000

Plant & Machinery (estimated to produce Rs. 6,30,000) ------------------ 6,00,000

Fixtures & Fittings (estimated to produce Rs. 80,000) -------------------- 1,20,000

You are required to prepare a statement of affairs of the company.

(Deficiency as regards (i) creditors, Rs. 15,23,000 (ii) contributories Rs. 65,03,000)

4. From the following particulars prepare a Statement of Affairs and the Deficiency Account for

submission to the Official Liquidator of the Equipments Ltd. which went into liquidation on

March 31, 2001:-

Rs. Rs.

3,000 Equity Shares of Rs. 100 each, Rs. 80 paid 2,40,000

11% 1,000 Preference Shares of Rs. 100 each, fully paid 1,00,000

Less: Calls in arrear (expected to produce) 5,000 95,000

10% Debentures having a floating charge on the assets

Interest paid up to December 31, 2000) --------------------------- 1,00,000

Mortgage on Land & Buildings --------------------------------------------- 80,000

Trade Creditors ---------------------------------------------------------------- 2,65,500

Owing for wages -------------------------------------------------------------- 20,000

Secretary’s Salary @ Rs. 1,500 p.m. owing ------------------------------- 3,000

Managing Director’s Salary @ Rs. 6,000 p.m. owing ------------------- 6,000

Estimated to Book

Produce value

Rs. Rs.

Assets :

Land and Buildings 1,30,000 1,20,000

Plant 1,30,000 2,00,000

Tools 4,000 20,000Patents 30,000 50,000

Stock 74,000 87,000

Book Debts 60,000 90,000

Investments (in the hands of bank for an

Overdraft of Rs. 1,90,000) 1,70,000 1,80,000

On 31st March, 1996 the balance sheet of the company showed a general reserve of Rs. 40,000

accompanied by a debit balance of Rs. 25,000 in the Profit and Loss Account. In 1996-97, the

company made a profit of Rs. 40,000 and declared a dividend of 10% on equity shares. Besides

loss of stock due to fire of Rs. 40,000, the company suffered a total loss of Rs. 1,09,000 during

1997-98, 1998-99 and 1999-2000. For 2000-2001 accounts were not made up.

(Deficiency as regards (i) creditors Rs. 64,000 (ii) members, Rs. 4,04,000)



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5. The following particulars relate to a limited company which has gone into voluntary

liquidation. You are required to prepare the Liquidator’s Final Account, allowing for his

remuneration @ 2% on the amount realized, and 2% on the amount distributed among

unsecured creditors other than preferential creditors :-

Rs.Preferential Creditors ------------------------------------------------- 10,000

Unsecured Creditors -------------------------------------------------- 32,000

Debentures ------------------------------------------------------------- 10,000

The assets realized the following sums :-

Land and Buildings --------------------------------------------------- 20,000

Plant and Machinery ------------------------------------------------- 18,650

Fixtures and Fittings ------------------------------------------------- 1,000

The liquidation expenses amounted to Rs. 1,000.

(Liquidator’s Remuneration Rs. 1,143; Amount paid to unsecured creditors, Rs. 17,507)

6. The Sunny Valley Mining Co. Ltd. went into voluntary liquidation on 1st April, 2001, as its

mines reached such a state of depletion that it became too costly to excavate further minerals.

The Liquidator, whose remuneration is 3% on realization of assets and 2% on distribution

among shareholders, realized all the assets. The following was the position of the company on

31st March, 2001:-

Rs.

Cash on realization of assets ------------------------------------------------------ 5,00,000

Expenses of Liquidation ----------------------------------------------------------- 9,000

Unsecured Creditors (including salaries and wages for one month

Prior to liquidation, Rs. 6,000) ------------------------------------------ 68,000

1,500 14% Preference shares of Rs. 100 each (dividend paid up to

31st March, 2000) ---------------------------------------------------------- 1,50,000

10,000 Equity shares of Rs. 10 each, Rs. 9 per share called and paid up --- 90,000

General Reserve as on 31st March, 2001 ---------------------------------------- 1,20,000

Profit & Loss Account as on 31st March, 2001 --------------------------------- 20,000

Under the Articles of Association of the company, the Preference shareholders have the right to

receive one-third of the surplus remaining after repaying the equity share capital.

(Preference shareholders receive Rs. 2,17,333 and equity shareholders receive, Rs. 1,82,667)



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7. The following is the Balance Sheet of X Ltd. as on 31st March, 2000 :-

Authorized & Subscribed Capital :

20,000 14% Redeemable Preference

Shares of Rs. 10 each

10,000 Equity shares of Rs. 10 each,Rs. 9 paid

10,000 Equity shares of Rs. 10 each,

Rs. 5 paid

14% Mortgage Debentures (holding a

Floating charge on all the assets

of the company)

Interest Outstanding on the Debentures

Loan secured by hypothecation of stock

Trade Creditors

Creditors for salaries and wages

Liability for workmen’s compensation Owing to Government for Telephone

And purchases

Owing of government for taxes

Rs.

2,00,000

90,000

50,000

1,00,000

14,000

40,000

72,000

15,000

2,000

2,500

10,000

Land & Buildings

Plant & Machinery

Patents

InvestmentsStock

Sundry Debtors

Cash at Bank

Profit and Loss Account

Rs.

1,90,000

1,20,000

10,000

40,00045,000

90,000

35,000

65,500

5,95,500 5,95,500

The company went into voluntary liquidation on 1st April, 2000 and a liquidator was appointed

with a remuneration of 2 per cent of assets realized with the exception of cash and 2 per cent of

the amount distributed among unsecured creditors other than preferential creditors. The dividend

of preference shares was not paid for 1999-2000. Stock realized Rs. 30,000 and the other assets

excluding cash realized Rs. 4,00,000. All assets were realized and payments made on September

30, 2000. Prepare the Liquidator’s Final Statement of Account, assuming the expenses of

liquidation were Rs. 5,610.

(Equity shares on which Rs. 5 is paid contribute Rs. 2.67 per share; the other equity

shareholders receive Rs. 1.33 per share)

8. A Ltd. went into voluntary liquidation on September 30, 2000. Its liabilities were as under:-

Rs.

14% Debentures with a floating charge on the assetsExcept uncalled capital ---------------------------------------------- 2,00,000

Interest due on Debentures for one year ---------------------------- 28,000

Bank Overdraft (with a lien on Stock) ------------------------------ 50,000

Trade Creditors -------------------------------------------------------- 1,50,000

Loan from a director to pay wages --------------------------------- 10,000

Provident Fund of employees --------------------------------------- 30,000

E.S.I. premium for 6 months to September 30, 2000 ------------ 1,000

The Capital consisted of :

14% Preference Shares of Rs. 100 each fully paid --------------- 1,00,000

Equity Shares of Rs. 100 each, Rs. 90 paid ----------------------- 1,80,000

Equity Shares of Rs. 100 each, Rs. 50 paid ----------------------- 1,00,000



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The assets realized as follows: -

Stock Other Assets

Rs. Rs.

October 15, 2000 ---------------------------------- 20,000 1,50,000

November 14, 2000 ------------------------------- 20,000 1,40,000December 15, 2000 ------------------------------- 40,000 1,50,000

The liquidator is entitled to 2% on amounts realized from assets and to 25% on the saving which

the equity shareholders would have from their maximum legal liability. The debenture holders

waived interest after 30th September, 2000. After reserving Rs. 10,000 for expenses (which

ultimately amounted Rs. 8,000 and were paid on December 15, 2000), the liquidator distributed

the cash among the various parties according to their rights.

Prepare the Statement of Account which the liquidator would be required to submit.

(Debenture holders get Rs. 95,600 on October 15 and Rs. 1,32,400 on November 14,. Loss

suffered by equity shareholders Rs. 89.48 per share)

liquidation accounting

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