ADVANCED CORPORATE ACCOUNTING.

B. COM 4TH
SEMESTER.
ADVANCED CORPORATE ACCOUNTING.
1
ABHISHEK D K, COMMERCE LECTURER.
UNIT 4:
LIQUIDATION OF COMPANIES:
Liquidator:
When there is liquidation of a company, one or more person s are required to be appointed
specially for conducting the liquidation or winding up proceedings of the company. Such a
person/s are called Liquidator/s.
The liquidator appointed by the court as well as the members and creditors may together
function as liquidators.
Functions of a Liquidator:
1. To realise the assets of the company.
2. To collect the money due from contributories.
3. To distribute the amount realized from sale of assets and amount received from
contributories in the order of preference as per Rule 329 of Companies Act.
4. To maintain and submit the record of receipts and payments of cash to the members in
case of voluntary winding up and to the court in case of compulsory winding up.
Liquidation:
Liquidation or winding up of a company means the termination (closing down) of the legal
existence of a company.
Under such circumstances, the assets of the company are disposed off and the debts are paid,
out of the amount realised from assets or from the contributions made by the members and
the surplus, if any, is distributed among members in proportion to their holding.
Types of winding up of a company:
1. Compulsory winding up by the court.
2. Voluntary winding up:
a. Member’s voluntary winding up.
b. Creditor’s voluntary winding up.
3. Voluntary winding up under the supervision of the court.
1. Compulsory Winding up:
It can take place when the company is directed to be wound-up by an order of court.

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Grounds (circumstances/situations) for compulsory winding up of a company (Section
433):
1. If the company has by-special resolution resolved that the company be wound up by
the court.
2. If the company does not commence its business within a year from its incorporation.
3. If a default is made in delivery, the statutory report of the Registrar of Companies or
in holding the statutory meeting of the company.
4. If the number of members falls below 7 in case of public company and below 2 in
case of private company.
5. If the company is unable to pay its debts.
6. If the court is of the opinion that it is just and equitable that the company should be
wound up.
2. Voluntary Winding up:
A company can be wound up voluntarily under the following circumstances:
1. By an ordinary Resolution:
a. Where the duration of the company was fixed by the articles and the period has
expired; and
b. Where the articles provided for winding up on the occurrence of any event and the
specified event has occurred.
2. By a Special Resolution:
When a resolution is passed by the members in all other cases for voluntary winding
up, it must be notified to the public by an advertisement in the Official Gazette and in
newspapers.
Types of Voluntary Winding up:
1. Member’s voluntary winding up:
At the time of winding up if the company is a solvent company i.e., able to pay its
debts and Directors, make a declaration to that effect, it is called a Member’s
Voluntary Winding up.
2. Creditor’s voluntary winding up:
When the declaration of solvency is not made and filed with the Registrar, it may be
presumed that the company is insolvent. In that case, the company must call a
meeting of its creditors for passing the resolution for winding up.

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3. Voluntary Winding up under the Supervision of the Court:
At any time after a company has passed a resolution for voluntary winding up, the
court makes an order that the voluntary winding up shall continue, but subject to such
supervision of the court and with such liberty for creditors, contributories or others to
apply to the court and generally on such terms and conditions as the court thinks just.
This type of liquidation is called “voluntary winding up under the supervision of the
court”.
Contributory:
Section 428 of Companies Act, “every person is liable to contribute to the assets of a
company in the event of its wound up and includes the holder of any shares which are fully
paid up and also any person alleged to be a contributory”.
Preferential Creditors:
Preferential Creditors are those unsecured creditors who on account of provision of
Companies Act have priority of payment over the other unsecured creditors.
Secured Creditors:
Secured Creditors are those creditors who are secured by some specific asset of the company.
What is a Liquidators Final Statement of Accounts? How it is prepared?
The statement prepared to record all the assets realized and discharge of liabilities by the
liquidator at the time of winding up or liquidation of the company is called liquidators final
statement of accounts.
It is prepared after the affairs of the company are fully wound up.
Order of Payment:
The liquidator must make payments in the following order:
1. Secured Creditors.
2. Legal expenses (including liquidation expenses and cost of winding up).
3. Liquidator’s remuneration.
4. Payments to debenture holders and other creditors having floating charge on the assets
of the company.
5. Payments to Preferential Creditors.
6. Payments to Unsecured Creditors.
7. Calls in advance, if any.

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8. Arrears of dividends on cumulative preference shares.
9. Amount due to preference shareholders.
10. Amount due to equity shareholders.
Format for the preparation of Liquidator’s Final Statement of Account:
Receipts Rs. Payments Rs.
Cash in hand
Cash at Bank
Assets Realised:
Marketable
Securities
Bills Receivables
Trade Debtors
Loans and Advances
Stock in trade
Work in Progress
Land & Building
Plant & Machinery
Furniture and fixtures
Patents, trademarks,
etc.
Investments, etc.
Surplus realised from
Secured Creditors (if
any)
Calls in arrears
Amount received
from calls on shares
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
Secured creditors
Legal charges (including liquidation
expenses)
Liquidator’s Remuneration
Other expenses on liquidation
Debenture holders:
Outstanding interest on debenture
Debentures
Preferential Creditors
Unsecured Creditors
Calls in advance, if any
Arrears of Dividend on Cumulative
Preference Shares
Preference Shareholders
Equity Shareholders
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX
XXX XXX

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Problems:
1. The following particulars relates to a limited company which has gone into voluntary
liquidation. You are required to prepare the liquidator’s final accounts allowing for
his remuneration at 2% on amount realized, 2% on amount distributed to unsecured
creditors other than preferential creditors.
Preferential Creditors 10,000 Rs.
Unsecured Creditors 32,000 Rs.
Debentures 10,000 Rs.
The assets realized the following:
Land and Building 20,000 Rs.
Plant and Machinery 18,650 Rs.
Fixtures and Fittings 1,000 Rs.
Liquidation expenses 1,000 Rs.
2. Prakash Limited went into liquidation on 31/12/18. Following information is
available with the liquidator. Creditors amounted to 75,660 Rs. Of which 8,000 Rs.
are preferential. Debentures having a floating charge on the assets of the company
amounted to 80,000 Rs. debentures to be paid interest upto 30th
June 2019. The
assets realized as follows:
Stock 84,000 Rs.
Plant and Machinery 60,000 Rs.
Cash in hand 500 Rs.
Debentures were paid off on 30th
June 2019 with interest.
Liquidators expenses 1,902 Rs. and he is given a remuneration at 3% on amount
realized and 2% on amount distributed to unsecured creditors excluding preferential
creditors.
Prepare Liquidators Final Statement of A/c.
3. From the following details, prepare Liquidators Final Statement of A/c:
Assets Rs.
Land and Building
Plant and Machinery
Furniture
Stock and Debtors
6,00,000
3,60,000
1,20,000
80,000

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Cash 10,000
Liabilities Rs.
Debentures
Creditors
8,00,000
4,60,000
The assets other than Land and Building realized 10% less and Land and Building realized
25% more. Liquidation expenses 5,000 Rs. Liquidators remuneration is 2% on assets
realized and 3% on amount distributed to unsecured creditors.
4. Luckless company went into voluntary liquidation on 31/12/18, where the statement
of affairs was as below:
Unsecured creditors was 4,00,000 Rs. including 50,000 Rs. preferential claims.
Secured creditors secured on Plant and Machinery stood at 2,00,000 Rs. Cash in hand
was 10,000 Rs. Liquidators realized Plant and Machinery for 1,50,000 Rs. and the
other assets realized 1,00,000 Rs. The liquidation expenses came to 10,000 Rs. and
the liquidators remuneration was fixed at 4% of the amount realized including cash
balance and 2% of the amount distributed to unsecured creditors including
preferential creditors. Prepare liquidators Final Statement of A/c showing the
distribution of cash.
5. Calculate Liquidators remuneration:
a. Balance of cash after paying preferential creditors 4,10,000 Rs.
b. Other unsecured creditors 4,78,000 Rs.
c. Liquidators remuneration 3% on the amount paid to other unsecured creditors.
Also, state the amount paid to unsecured creditors.
6. Bad Luck Limited went into liquidation. Its assets realized 1,75,000 Rs. excluding
the amount realized by sale of securities held by the secured creditors. The following
was the position:
Share Capital 500 shares of 100 Rs. each.
Secured creditors (Securities realized 20,000 Rs.) 17,500 Rs.
Preferential creditors 3,000 Rs.
Unsecured creditors 70,000 Rs.
Debentures having a floating charge on the assets of the company 1,25,000 Rs.
Liquidation expenses 6,250 Rs.

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Liquidator is to be paid a commission of 2% on the amount actually paid to unsecured
creditors including preferential creditors.
7. The following was the Balance Sheet of Unsound Limited as at 31/12/18 when it was
wound up voluntarily:
Liabilities Rs. Assets Rs.
50,000 equity shares of
Rs. 10 each.
2,000, 6% cumulative
preference shares of 100
Rs. each.
7% Debentures
Sundry Creditors:
Trade 3,00,000
Cash 48,000
Outstanding 2,000
5,00,000
2,00,000
1,00,000
3,50,000
Plant and Machinery
Furniture
Investments
Stock
Debtors
Cash
Profit and Loss A/c
4,00,000
1,000
50,000
50,000
2,00,000
1,200
4,47,800
11,50,000 11,50,000
Preference dividend is in arrears for 1 year. Debenture interest is also due for 1 year.
All the outstanding creditors are preferential.
The assets realized are:
Plant and Machinery Rs. 2,80,000
Furniture Rs. 400
Debtors Rs. 1,50,000
The stock and investments realized nothing.
The liquidation expenses amounted to 2,000 Rs.
The liquidator is entitled to a commission of 4% on the assets realized and 2% on
amount paid to unsecured creditors.

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8. The Unlucky Limited went into voluntary liquidation on 31/03/18 on which date, the
position was as follows:
5,000 equity shares of 100
Rs. each, 80 Rs. paid up.
Loan (secured by
Mortgage of Land and
Building).
Unsecured Liabilities
(including 10,000 Rs.
preferential creditors).
4,00,000
1,00,000
2,00,000
Land and Building
Fixed assets
Stock
Debtors
Loan
Cash
Profit and Loss A/c
80,000
2,60,000
1,05,000
1,00,000
40,000
5,000
1,10,000
7,00,000 7,00,000
Land and Building were realized by secured creditors 1,20,000 Rs. and other fixed
assets realized 40,000 Rs., debtors 20,000 Rs., stock realized 10,000 Rs.
Loans were wholly bad. Liquidator is entitled to a fixed remuneration of 1,000 plus
2% on the amount paid to unsecured creditors.
Liquidator, out of pocket expenses amounted to 1,000 Rs. Show the Liquidators
Statement of A/c.
9. Balance Sheet of X Limited as on 31/12/18:
4,000, 6% preference
shares of 100 Rs. each.
Rs. each, 60 Rs. per share
paid up.
5% Debentures
Outstanding debenture
interest
Creditors
4,00,000
1,50,000
3,60,000
2,00,000
10,000
2,90,000
Land
Plant
Patents
Stock
Debtors
Cash
P and L A/c
2,00,000
5,00,000
80,000
1,10,000
2,20,000
60,000
2,40,000

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14,10,000 14,10,000
On the date of Balance Sheet, the company went into liquidation. The dividends on
preference shares are in arrears for 2 years. The arrears are payable on liquidation as
per Articles of Association. The debentures have a floating charge on the assets of the
company. Creditors include a loan of 1,00,000 Rs. secured by mortgage of land. The
assets realized are as under:
Land 2,40,000 Rs.
Patents 60,000 Rs.
Debtors 1,60,000 Rs.
Plant 4,00,000 Rs.
Stock 1,20,000 Rs.
The expenses of liquidation amounted to 21,800 Rs. The liquidator is entitled to a
commission of 3% on all assets realized including cash and a commission of 2% on
the amount distributed to unsecured creditors. Preferential creditors amounted to
30,000 Rs. Prepare Liquidators Final Statement of A/c.
10. Quick Consumption Limited went into voluntary liquidation on 31/12/18. The
Balance Sheet as on that date was:
Share Capital:
5,000, 6% cumulative
preference shares of 100
Rs. each fully paid.
5% Mortgage Debentures
Interest outstanding on
debentures
5,00,000
1,87,500
4,50,000
2,50,000
12,500
Land and Building
Machinery
Patents
Stock
Debtors
Cash at Bank
P and L A/c
2,50,000
6,25,000
1,00,000
1,37,500
2,75,000
75,000
3,00,000

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Creditors 3,62,500
17,62,500 17,62,500
The liquidator is entitled to a commission of 3% on all assets realized except cash and
2% on amount distributed to unsecured creditors.
Creditors include 17,500 Rs. for income tax due to government, 5,000 Rs. outstanding
salaries of employees and an award of 15,000 Rs. made under Workmen’s
Compensation Act. It also includes a loan for 1,25,000 Rs. secured by Mortgage on
Land and Building. The preference dividends were in arrears for 2 years. The assets
realized as follows:
Land and Building 3,00,000 Rs.
Machinery 5,00,000 Rs.
Patents 75,000 Rs.
Stock 1,50,000 Rs.
Expenses of liquidation amounted to Rs. 27,250.
11. Slow Progress Limited went into voluntary liquidation on 31/03/18, Balance Sheet of
the company was as follows:
Share capital:
5,000 6% preference
shares of 100 Rs. each,
fully paid.
Rs. each, 60 Rs. paid.
5% Mortgage Debentures
Interest Outstanding
Sundry Creditors
5,00,000
1,87,500
4,50,000
2,50,000
12,500
3,62,500
Land and Building
Plant and Machinery
Patents
Stock
Debtors
Cash
Profit and Loss A/c
2,75,000
6,00,000
1,00,000
1,37,500
2,75,000
75,000
3,00,000

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17,62,500 17,62,500
The liquidator is entitled to a remuneration of 4% on all assets realized except cash
and 3% on amount distributed to unsecured creditors other than preferential creditors.
Creditors include preferential creditors 37,500 Rs. and a loan for 1,25,000 Rs. secured
by mortgage on Land and Building.
The preferential dividends were in arrears for 2 years.
The assets realized as follows:
Land and Building 3,25,000 Rs.
Plant and Machinery 5,00,000 Rs.
Patents 75,000 Rs.
Stock 1,50,000 Rs.
Liquidation expenses amounted to 27,250 Rs. Prepare Liquidators Final Statement of
A/c.
12. S Company went into liquidation on 1st
January 2018. The liquidator whose
remuneration is 3% on all assets realized and 2% on amount distributed to preferential
shareholders and Equity shareholders and assets realized 10,00,000 Rs.
Expenses of liquidation 18,000 Rs.
Unsecured Creditors (including salary and wages outstanding 12,000 Rs) 1,36,000 Rs.
10,000, 6% Preference Shares of 30 Rs. each 3,00,000 Rs.
20,000 Equity Shares of 10 Rs. each, 9 Rs. per share are called and paid 1,80,000 Rs.
General Reserve 2,40,000 Rs.
Profit and Loss A/c 40,000 Rs.
Under Articles of Association of the company, the preference shareholders have the
right to receive 1 third of the surplus after repaying the Equity Share Capital.
13. Anu Limited went into liquidation on 31/03/14, when the state of affairs was as
follows:
Unsecured creditors was Rs. 8,00,000 including Rs. 1,00,000 preferential claims.
Secured creditors secured by plant and machinery stood at Rs. 4,00,000. Cash in hand
was Rs. 20,000.

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The liquidator realized plant and machinery for Rs. 3,00,000 and other assets realized
Rs. 2,00,000. The liquidation expenses came to Rs. 20,000 and liquidator’s
remuneration was fixed at 4% of the amount realized including cash balance and 2%
of the amount distributed to unsecured creditors including preferential creditors.
Prepare Liquidator’s final statement of Account.
14. The Balance Sheet of Narayan Ltd. As on 31-3-2014 was as follows:
Paid-up capital:
2000, 6% preference shares
of Rs. 100 each
4000 Eq. shares of Rs. 100
each fully paid
6000 Eq. shares of Rs. 100
each, Rs. 50, paid
6% debenture
(Floating charges on all
assets)
Mortgage on land and
buildings
S. Creditors
Income tax provision
2,00,000
4,00,000
3,00,000
2,00,000
2,00,000
1,80,000
20,000
Land and buildings
Plant and machinery
Stock
S. Debtors
Cash at Bank
P/L A/c
4,00,000
4,40,000
2,00,000
2,00,000
60,000
3,00,000
15,00,000 15,00,000
The company went into liquidation on 1-4-2014. The preference dividends were in
arrears for 3 years. The arrears are payable on liquidation.
The assets were realized as follows:
Rs.
Land and buildings 4,80,000
Plant and machinery 3,60,000
Stock 1,40,000
Debtors 1,20,000
Expenses of liquidation 16,000

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The liquidator is entitled to a commission of 2% on all assets realized and 3% on the
amount distributed to unsecured creditors (including preferential creditors).
All the payment made on 30th
Sep. 2014.
Prepare Liquidator’s Final Statement of Account.
15. Ramu Ltd. Went into voluntary liquidation on 31-03-2014 when their liabilities and
assets were as follows:
Issued and
Subscribed Capital:
10,000, 10%
Cumulative Pref.
Shares of Rs. 100
each fully paid
5,000 Equity shares
of Rs. 100 each Rs.
75 paid
15,000 Equity
shares of Rs. 100
each Rs. 60 paid
15% debentures
secured by Floating
charge
Interest o/s on
debentures
Creditors
10,00,000
3,75,000
9,00,000
5,00,000
75,000
6,37,500
Land and Buildings
Machinery and Plant
Patents
Stock
Debtors
Cash at bank
5,00,000
18,12,500
2,00,000
2,75,000
5,50,000
1,50,000
34,87,500 34,87,500
Preference dividends were in arrears for 2 years and the creditors included preferential
creditors of Rs. 76,000.
The assets realized ad follows:
Land and building Rs. 6,00,000
Machinery and plant Rs. 10,00,000

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Patents Rs. 1,50,000
Stock Rs. 3,00,000
Sundry Debtors Rs. 4,00,000
The expenses of liquidation amounted to Rs. 54,500. The liquidator is entitled to a
commission of 3% on assets realized.
Assuming the final payments including those on debentures is made on 30-09-2014.
Show Liquidator’s Final Statement of Account.
16. The following particulars relate to Prasad Ltd., which went into voluntary liquidation:
 Preferential creditors Rs. 40,000
 Unsecured creditors other than preferential creditors Rs. 3,20,000
 Debenture holders Rs. 1,00,000
 Assets realized Rs. 3,96,500
 Liquidation expenses Rs. 10,000
You are required to prepare Liquidator’s Final Statement of account allowing for
his remuneration at 2% on assets realized and 2% on amount distributed to
unsecured creditors including preferential creditors.
17. Bhavya Ltd., went into voluntary liquidation on 31-03-16. As at this date, its Balance
Sheet was as under:
Particulars Rs.
12% preference shares of Rs. 100
20,000 equity shares of Rs. 10 each fully
paid
50,000 equity shares of Rs. 10 each Rs. 8
paid
30,000 equity shares of Rs. 10 each Rs. 6
paid
Creditors (including secured creditors Rs.
60,000 and preferential creditors Rs.
15,000)
2,00,000
2,00,000
4,00,000
1,80,000
2,20,000
14,00,000

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Assets
Freehold property
Plant and Machinery
Motor Vehicles
Stock
Debtors
Cash in hand
P & L A/c
5,80,000
2,90,000
60,000
1,90,000
1,00,000
30,000
1,50,000
14,00,000
Additional Information:
1. The preference dividend is in arrear for 2 years and it payable on liquidation.
2. The liquidator realizes the assets as follows: Freehold Property Rs. 7,00,000, Plant
and Machinery Rs. 2,50,000, Motor Vehicles Rs. 40,000, Stock Rs. 1,75,000 and
Debtors Rs. 80,000.
3. The liquidation expenses amounted to Rs. 5,000 and the liquidator is entitled to a
remuneration of 3% on assets realized (excluding cash) and 2% on the amount paid to
unsecured creditors including preferential creditors.
You are required to prepare Liquidator’s Final Statement of account and calculate the final
payment per each category of equity share.
__________________________________________________________________________

ADVANCED CORPORATE ACCOUNTING.

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