Liquidation Problems and Solution

(Working Notes are essential and it carry Marks)

Q.1.
A company went into liquidation on 31-3-2023 when the following Balance Sheet was as
follows. Prepare liquidator’s final statement of account by taking into account his remuneration
at 2.5% on the amount realized and 2% on the amount paid to unsecured creditors. The assets
realized by liquidator are as follows:
Fixed assets ₹1,72,000 (including ₹ 70,000 on freehold property);
Current assets ₹1,95,000 and
Cash ₹ 5,000.
Liquidation expenses amounted to ₹ 2,000/-
Balance Sheet
As on 31st March 2023
Liabilities Amount
Shares Capital (Equity shares of ₹10 each) 3,90,000
Creditors – Preferential 48,400
Partly secured creditors (on freehold property) 1,10,620
Unsecured Creditors 2,23,580
7,72,600
Assets Amount
Goodwill and Patents 1,00,000
Fixed Assets (Including freehold property) 2,27,000
Current Assets 2,43,240
Cash 5,000
Profit & Loss Account 1,97,360
7,72,600
Q.1. (Solutions)

Liquidators Final Statement of Account [ 10 Marks]

As at 31st March 2023
Receipts Amount Payments Amount
To Cash 5,000 By Legal Charges 500
To Plant & Machinery 1,02,000 By Liquidator Remuneration
To Debtors 1,05,000 On Amount Realised 9,175
To Stock 90,000 On Preference Creditors 968
On Unsecured Creditors 4,734 14,877
To Freehold Property 70,000 By Liquidation Expenses 1,500
Less: Amt. due to By Preferential Creditors 48,400
Partly Sec. Creditors 1,10,620 By Unsecured Creditors 2,36,723
Deficiency ranking as 40,620 By Preference shareholders NIL
unsecured By Equity Shareholders NIL

3,02,000 3,02,000
Calculation of Liquidators Remuneration

Particulars Amount Amount Total

Amount
Assets Realised 2 Marks
Plant & Machinery 1,02,000
Freehold Property 70,000
Debtors 1,05,000
Stock 90,000 3,67,000
2 ½ % on 3,67,000 9,175
2% on Amount paid to Preferential 968 1 Mark
Creditors i.e. ₹ 48,400/-
Amount available 3,02,000 3 Marks
Less: Legal Charges 500
Less: Liquidation Expenses 1,500
Less: Preferential Creditors 48,400
Less: Remuneration on Assets Realised 9,175
Less: Remuneration of Pref. Creditors 968 60,543
Amt. Availa for paying to Unsec. Creditors 2,41,457 1 Mark
Less: 2% on 2,41,457 4,734
Amt. Payable to Unsecured Creditors 2,36,723
3 Marks
241457 This amount includes Commission based on Payment to unsecured Creditors.
Hence
When Balance is 102 Commission is 2
When Balance is 2,41,457 ?
By cross multiplication 2,41,457 X 2 = 4,734
102
Q.2.
Micro Chip Processors went into voluntary liquidation as on 31 st March 2023, when their
Balance Sheet was as under.
Balance Sheet
As on 31st March 2023
Liabilities Amount
5,000, 10% Cumulative Preference Shares of ₹100 each fully paid. 5,00,000
2,500 Equity shares of ₹ 100 each ₹ 75 paid. 1,87,000
7,500 Equity shares of ₹ 100 each ₹ 60 paid. 4,50,000
15% Debentures secured by a floating charge 2,50,000
Interest Outstanding on Debentures. 37,500
3,18,750
17,43,750
Assets Amount
Land and Building 2,50,000
Plant & Machinery 6,25,000
Patents 1,00,000
Stock 1,37,500
Sundry Debtors 2,75,000
Cash and Bank Balance 75,000
Profit & Loss A/c 2,81,250
17,43,750

Additional Information:
1. Preference Dividends were in arrears for 2 years
2. The creditors include preferential creditors of ₹ 38,000
3. The Assets realised as follows.
a. Land and Building 3,00,000
b. Plant & Machinery 5,00,000
c. Patents 75,000
d. Stock 1,50,000
e. Sundry Debtors 2,00,000
4. Legal Charges amounted to ₹ 10,000
5. The expenses of liquidation amounted to ₹ 17,250
6. The liquidator is entitled to a commission of 3% on assets realised except cash.
7. Assume the final payments including those on Debentures is made on 30th Sept. 2023.
Prepare the Liquidators Final Statement of Account.
Q.2. (Solution)

Liquidators Final Statement of Account

As at 31st March 2023 [10 Marks]
Receipts Amount Payments Amount
To Cash and Bank Bal 75,000 By Legal Charges 5,000
To Assets Realised By Liquidator Remuneration
Land and Building 3,00,000 On Amount Realised
Plant 2,50,000 3% on 12,25,000/- 36,750
Machinery 2,50,000 By Liquidation Expenses 22,250
Patents 75,000 By Preferential Creditors 38,000
Stock 1,50,000 By 15% Debenture holders
Sundry Debtors 2,00,000 12,25,000 Principal
To Calls on Eq. Sh. Int. upto 31st March 2023 2,50,000
7,500 shares of ₹60 19,875 Outstanding Interest 37,500
paid up @ 2.65/- per By Unsecured Creditors 18,750 3,06,250
share By Preference Shareholders 2,80,750
Principal
Dividend 5,00,000
By Equity Shareholders 1,00,000 6,00,000
on 2,500 shares of ₹70
paid up @ 12.35/- per
shares 30,875
13,19,875 13,19,875

Working Note:
1. Calculation of interest on Debentures. [2 Marks]
Interest on Debentures From 01.04.2023 to 30.09.2023
15% on 2,50,000 for 6 Months 2,50,000 X 15 X 6 = 18,750
100 x 12
2. Calculation of Preference Dividend [2 Marks]
10% on ₹ 5,00,000/- = 50,000 X 2 Years = 1,00,000
3. Calls and Final Payment to Equity Shareholders. [6 Marks]
Total Paid-up Capital (4,50,000 + 1,87,500) 6,37,500
Less: After paying unsecured creditors and Preference Shares 11,000
Loss to be borne by Equity Shareholders 6,26,500
Loss per share will be 6,26,500 / 10,0000 Eq. shares 62,65 per share

Thus,
1. The Amount of call on 7,500 shares of ₹60 paid up @ 2.65/- per share 19,875
2. Refund on 2,500 shares of ₹70 paid up @ 12.35/- per shares 30,875
Q.3.
The Balance Sheet of Rajnish Ltd. As on 31st March 2023 was as follows.
Balance Sheet
As on 31st March 2023
Liabilities Amount
Share Capital
2000, 8% Preference Shares of ₹ 100 each fully paid 2,00,000
4,000 Equity shares of ₹ 100 each ₹ 80 paid. 3,20,000
6,000 Equity shares of ₹ 100 each ₹ 75 paid. 4,20,000
8% Debentures 2,00,000
(having floating charges on all assets)
Debenture Interest Payable 8,000
Sundry Creditors 3,20,000
14,68,000
Assets Amount
Goodwill 2,24,000
Land and Buildings 4,36,000
Plant and Machinery 1,80,000
Furniture 20,000
Office Equipment 40,000
Stock 1,98,000
Debtors 1,70,000
Bills Receivable 44,000
Cash in Hand 16,000
Profit & Loss 1,40,000
14,68,000

The Company went into voluntary liquidation as on that date.

a. Preference Dividend was in arrears for last three years and as per the articles, it was to
be returned before returning Equity Capital.
b. Sundry Creditors include a Loan of ₹ 80,000 secured on the hypothecation of Plant and
Machinery and Preferential Creditors of ₹ 20,000.
c. The liquidator realised the assets as follows:
Land and Buildings ₹ 4,30,000
Plant and Machinery ₹ 1,00,000
Office Equipment ₹ 25,000
Furniture ₹ 16,000
Stock ₹ 1,40,000
Debtors ₹ 1,20,000
Bills Receivable ₹28,000
d. Legal charges on liquidation amounted to ₹2,000. The liquidation expenses were 5,200.
The liquidator’s remuneration was fixed at ₹ 2,000 plus 2% on sale of assets, plus 4%
on the amount distributed to unsecured creditors.
e. There was a typewriter which was completely written off from the books of accounts,
but the liquidator sold it for ₹ 1,000 which was not included in the office Equipments
mentioned above.
Prepare the Liquidator’s Final Statement of Account, if the amounts were paid on 1 st
July 2023
Q.3. (Solution)

Liquidators Final Statement of Account

As at 31st March 2023 [12 Marks]
Receipts Amount Payments Amount
To Cash in hand 16,000 By Legal Charges 2,000
To Assets Realised By Liquidator Remuneration
Land & Building 4,30,000 i. Fixed 2,000
Furniture 16,000 ii. 2% on Assets Realised 17,200
Office Equipment 25,000 iii. 4% on Payment to Pref. Creditors 800
Stock 1,40,000 iv. 4% on Payment to Unsecu. Crs. 8,800 28,800
Debtors 1,20,000 By Liquidation Expenses 5,200
Bills Receivable 28,000 By Preferential Creditors 20,000
Typewriter 1,000 7,60,000 By 8% Debenture holders 2,00,000
To Surplus from Securities Add: Outstanding Interest 8,000
Plant & Machinery 1,00,000 Add: Outstanding Interest 4,000 2,12,000
Less: Loans secured 80,000 20,000 (For 3 months till 1St July 2023)
By Unsecured Creditors 2,20,000
By Preference Shareholders 2,00,000
Add: Dividend Arrears 48,000 2,48,000
By Equity Shareholders
4,000 Eq. shares X 12 Per share 48,000
6,000 Eq. Shares X 2 per share 12,000 60,000

7,96,000 7,96,000
Working Note.
Calculation of Liquidators Remuneration [2 Marks]
Particulars Amount Amount
a) Fixed 2000
b) 2% on Assets Realised i.e. 8,60,000/- 17,200
c) 4% on Payment to Pref. Creditors i.e. 20,000/- 800
d) 4% on Payment to Unsecured i.e. 2,20,000/- 8,800 28,800
Sundry Creditors include a Loan of ₹ 80,000 secured on the hypothecation of Plant
and Machinery and Preferential Creditors of ₹ 20,000. [2 Marks]
Sundry Creditors 3,20,000
Less: Secured Creditors 80,000
Less: Preferential Creditors 20,000
Unsecured Creditors 2,20,000
Payment to Equity Shareholders
Receipts 7,96,000
Less: Payments 7,36,000
Cash available to Equity Shareholders 60,000
There are two varieties of equity shareholders [4 Marks]
4,000 Equity shares of ₹ 80 paid up
6,000 Equity shares of ₹70 paid up
First pay to 4,000 Equity shares @ 10/per share = 40,000
Secondly pay to all i.e. 10,000 Equity shares @ 2/- per share ___20,000
___60,000
i.e. Loss per share is 6,80,000 = ₹ 68/-
10,000