Accounting

AF 203 CORPORATE ACCOUNTING Workshop 7 Question 1 Stricken Ltd went into liquidation on 1 April 20X6 and presents the following trial balance. Stricken Ltd Trial Balance as at 1 April 20X6 $ $ Accounts receivable 75 000 Inventory 196 000 Motor vehicles 16 000 Plant and equipment 92 000 Land and buildings 80 000 Preliminary expenses 3 000 Accumulated losses (debit) 200 000 Bank 58 000 Trade creditors 69 000 Accrued expenses 2 000 Unsecured notes 100 000 Share capital ($1 shares) - Preference (fully paid) 150 000 - Ordinary (fully paid) 250 000 Accumulated depreciation – motor vehicles 5 000 - plant/equipment ______ 28 000 $662 000 $662 000 ====== ====== Additional information: (i) Proceeds from sale of assets: Accounts receivable $74 000 Inventory 160 000 Motor vehicles 9 000 Plant & equipment 52 000 Land & buildings 100 000 (ii) Payments: Interest on overdraft $900 Trade creditors 67 800 Accrued expenses 2 500 Unsecured notes & interest thereon 102 200 Liquidator’s expenses & remuneration 5 500 (iii) Rights of shareholders: Preference shareholders were preferential as to return of capital. Required Prepare the Cash account, the Liquidation account and the Shareholders’ Distribution account. Question 2 On 1 July 20X6, Downer Ltd went into voluntary liquidation and its assets and liabilities at that date were: $ 20 000 6% preference shares of $1. 20 000 40 000 ordinary shares of $1 each, 40 000 Paid-up capital 60 000 Less Accumulated losses 43 000 Shareholders’ equity 17 000 Unsecured notes 10 000 Mortgage on property 15 000 Accounts payable 3 400 Other outstanding liabilities 1 600 $47 000 ===== Property 16 000 Plant and equipment 12 000 Cash at bank 300 Accounts receivable 8 500 Inventory 10 200 $47 000 ===== The outstanding liabilities comprised: Sales tax 435 Wages 505 Income tax deducted from employees’ wages and Salaries not yet remitted 445 Income tax for year ended 20X4 (the last year in which A profit was made) outstanding 215 $ 1 600 The company’s constitution provided that in the event of liquidation, preference shares would be entitled to all arrears of preference dividends, whether earned, declared or not, up to 30 June immediately preceding the date on which liquidation commences. This was the only reference made in the constitution to the rights of shareholders in the event of winding up. Dividends were in arrears for two years. Assets realized the following amounts: property, $14700; plant and equipment, $10 000; accounts receivable, $6000; inventory, $8000. Required Prepare the Cash account, the Liquidation account and the Shareholders’ Distribution account. Question 3 Alistair Ltd went into liquidation on 1 July 20X6 and presents the following balance sheet. Alistair Ltd Balance Sheet as at 30 June 20X6 $ $ $ Assets Current Assets Accounts receivable 3 000 000 Inventory 500 500 Non-current assets Land and buildings 5 120 000 Furniture and fittings 2 300 000 Less Accumulated depreciation 420 000 1 880 000 7 000 000 Total assets $10 500 000 Liabilities Current liabilities Accrued expenses 75 200 Overdraft 57 000 Accounts Payable 180 000 312 200 Non-current liabilities Debentures 1 000 000 Total liabilities 1 312 000 Net assets 9 188 300 ======= Shareholders’ equity Share capital 1 000 000 preference shares of $1 each 1 000 000 8 000 000 “A” ordinary shares of $1 each 8 000 000 9 000 000 Asset revaluation reserve 2 000 000 Less Accumulated losses (1811 700) 188 300 $9188 300 ======= Additional information: (i) Proceeds from the sale of assets and collections: Accounts receivable $2 800 000 Inventory 450 000 Land & buildings 4 500 000 Furniture & fittings 1 223 000 (ii) Payments: Interest on overdraft not recorded amounted to 1 800 Interest on debentures not recorded, amounted to 100 000 Liquidator’s expenses and fees were 350 000 (iii) Preference shareholders were preferential as to the return of capital. Required (a) Prepare the Cash account, the Liquidation account and the Shareholders’ Distribution account. (b) How would the shareholders distribution varied, had preference shareholders not enjoyed preference with respect to the return of capital' Acknowledgement : these workshop exercise shave been adapted from material appearing in Gaffikin M. et al (2004) “Corporate Accounting in Australia” UNSW press.