Receivership and liquidation Accounts Prof. Oyedokun.pptx

Receivership and liquidation Accounts
Being a Paper Presented at Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) on Friday, August 18, 2023.

1. Receivership and liquidation Accounts Being a Paper Presented at Business Recovery and Insolvency Practitioners Association of Nigeria (BRIPAN) on Friday, August 18, 2023. Prof. Godwin Emmanuel Oyedokun Professor of Accounting and Financial Development Department of Management & Accounting Faculty of Management and Social Sciences Lead City University, Ibadan, Nigeria Principal Partner; Oyedokun Godwin Emmanuel & Co (Chartered Accountants, Tax Practitioners & Forensic Auditors)

2. ND (Fin), HND (Acct.), BSc. (Acct. Ed), BSc (Fin.), LLB., LLM, MBA (Acct. & Fin.), MSc. (Acct.), MSc. (Bus & Econs ), MSc. (Fin), MSc. ( Econs ), Ph.D. (Acct), Ph.D. (Fin), Ph.D. (FA), CICA, CFA, CFE, CIPFA, CPFA, CertIFR , ACS, ACIS, ACIArb , ACAMS, ABR, IPA, IFA, MNIM, FCA, FCTI, FCIB, FCNA, FCFIP, FCE, FERP, FFAR, FPD-CR, FSEAN, FNIOAIM, FCCrFA , FCCFI

3. Receivership and liquidation Accounts

4. Contents

5. Introduction

6. Concepts of Receivership

7. Legislation Governing Receivership

8. Receiver

9. Receivers and Receiver Managers

10. Appointment of a Receiver

11. Disqualification for Appointment as a Receiver or Manager

12. Powers of a Receiver and a receiver/manager (Section 393 of CAMA, 2020)

13. Liabilities of a Receiver

14. Effect on the Company of the Appointment of a Receiver

15. Resignation of a Receiver

16. Removal of a Receiver

17. Concept of Liquidation

18. Concept of Liquidation

19. Liquidator

20. Appointment of a Liquidator

21. The Principal Role and Duties of Liquidators

22. Laws Regulating the Winding up of Companies in Nigeria

23. Cost Implications of Liquidation Process

24. Cost Implications of Liquidation Process

25. Accounting in Liquidation

26. Accounting in Liquidation

27. Key Accounting Concepts Related to Liquidation

28. Other Accounting Concepts Related to Liquidation

29. Other Accounting Concepts Related to Liquidation

30. Accounting Standards Applicable to Liquidation

31. Accounting Standards Applicable to Liquidation

32. Steps in Liquidation of a Company

33. Steps in Liquidation of a Company

34. Effects do Liquidation Procedures on Existing Contracts

35. Extent of Directors' Powers in a Liquidation Process In accordance with section 464 CAMA, when a liquidator is appointed, all powers of the directors will cease, except the continuance is sanctioned at the general meeting or by the liquidator In Adamu Gbedu v. Joseph Itie & Ors11 the CA held that: "...the effect of appointing a liquidator under section 422(9) of the Act upon winding-up of a company is the divestiture of the powers of its board of directors and the in-vesture of such powers on the liquidator. When this happens, the board is said to be functus officio..."

36. Challenges of Liquidating of a Company

37. Effect of liquidation and receivership

38. Alternatives to Liquidation

39. Case Study 1 To illustrate the concept of receivership and liquidation accounts in Nigeria, we can consider the case study of Repent Plc., a manufacturing company, experienced financial difficulties and was unable to repay its debts As a result, the company's creditors invoked the receivership provisions of CAMA 2020 and appointed Mr. Jesupadabo as the receiver Mr. Jesupadabo , as the receiver, takes control of Repent Plc’s assets, including its factories, inventory, and receivables The receiver then prepares receivership accounts, documenting the opening balance of assets and liabilities, income from the sale of inventory, expenses incurred in managing the company, recoveries made from debtors, and payments made to creditors These accounts provide an accurate and transparent record of the financial transactions and activities during the receivership process Subsequently, if the receivership process is unsuccessful in reviving the company's financial position, the company may proceed to liquidation In this case, a liquidator, Mr. Bright, is appointed to wind up the company's affairs and distribute its assets to creditors Mr. Bright prepares liquidation accounts, which document the opening balance of assets and liabilities, proceeds from the sale of assets, payments made to creditors, and any surplus or deficiency Repent Plc

40. Case Study 2 /1 Arik Air Limited was incorporated in Nigeria under the Companies and Allied Matters Act as a private limited liability company and is domiciled in Nigeria Arik Air Limited ('the company' or 'Arik Air') was incorporated on 2 July 2004 and commenced business operations on 1 January 2006. The commercial flight operations commenced on 30 October 2006 The principal activities of the company are the provision of scheduled and chartered flight services to members of the general public, corporations and government establishments As at the balance sheet date, the company owned a fleet of twenty-three (23) aircraft, while four (4) were on lease In February 2017, the Asset Management Company of Nigeria (AMCON) served the management of Arik Air Limited with a court order appointing a Receiver Manager (Mr. Oluseye Opasanya SAN) to oversee the daily affairs of the company The Receiver Manager has taken charge of the company from the date of the appointment and has authorized the preparation of financial statements Mr Oluseye Opasanya (SAN) resigned on 6 June 2019 and Kamilu Alaba Omokide (FCA) was appointed as receiver manager on 10 June 2019 Results and dividend (No dividend is proposed by the directors) 31 December 31 December 2016 2015 N '000 N '000 Revenue 61,857,010 61,788,869 Operating loss (66,405,606) (26,586,725) Loss before taxation (84,872,281) (45,495,353) Loss after taxation (84,872,281) (45,495,353) Arik Air Limited (In Receivership)

41. Case Study 2 /2 The direct and indirect interests of directors in the issued share capital of the company as recorded in the register of directors’ shareholdings and as notified by the directors for the purposes of sections 275 and 276 of the Companies and Allied Matters Act are as follows: Number of shares held as at 31 December 2016 2015 Sir Johnson Arumemi-Ikhide ('000) 1,200,000 1,200,000 According to the register of members at 31 December 2016, the following shareholders of the Company held more than 10% of the issued share capital of the Company: Number of shares held Percentage held Sir Johnson Arumemi-Ikhide 1,200,000,000 60% Dame Mary Arumemi-Ikhide 700,000,000 35% None of the directors has notified the company for the purpose of section 277 of the Companies and Allied Matters Act of their direct or indirect interest in contracts or proposed contracts with the company during the year The company's business operations require the importation of specialized aircraft equipment as well as aviation services Major suppliers are: 1. Airbus (provider of A330-200 and A340-500 aircraft) 2. Boeing (provider of B737-700NG and B737-800NG aircraft) 3. Bombardier (provider of Dash 8-Q400, CRJ900 and CRJ 1000 aircraft) Arik Air Limited has a technical agreement with Iberia for the maintenance of Airbus A330- 200 and A340-500 aircraft In addition, the airline has technical agreements with Lufthansa Technik, Lufthansa City line, and Samco Aircraft Maintenance B.V for the provision of general and specific maintenance on the airline's other aircraft and other aviation equipment There are no other direct or indirect relationships with any of these suppliers Arik Air Limited (In Receivership)

42. Case Study 2 /3 The company made the following donations and charitable gift during the year: N '000 Fred Obasuyi 1,000 St. Theresa Catholic Churuch 2,500 Anthony Cardinal Okoje 5,500 Pluto Early learning Center 2,000 Poptimal Cancer Care 450 Reg Charity Donations in UK 2,046 The company did not make any donation to any political organization during the year In the directors’ opinion, the market value of the company’s property and equipment is not less than the value shown in the financial statements The financial statement was audited in accordance with section 357(2) of the companies and Allied Matters Act Arik Air Limited (In Receivership)

43. Case Study 3 /1 Salvation Plc, a manufacturing company based in Nigeria, has been in operation for several years However, due to mismanagement, economic downturn, and increased competition, the company has accumulated significant debts and is unable to meet its financial obligations As a result, the company's creditors initiate receivership proceedings and appoint Mr. Oluwatoberu as the receiver Mr. Oluwatoberu , an experienced professional, takes charge of Salvation Plc’s assets, including its factories, inventory, and receivables His primary responsibility is to manage the company's affairs, repay its debts, and ensure transparency in the receivership process To effectively handle the receivership process and maintain accurate financial records, Mr. Oluwatoberu employs the following solutions: 1. Assessing the Financial Situation Mr. Oluwatoberu conducts a thorough financial analysis of Salvation Plc to ascertain its true financial position This includes examining the company's financial statements, reviewing its outstanding debts, and identifying its major creditors By understanding the magnitude of the financial challenges, Mr. Oluwatoberu can develop a realistic plan for debt repayment Salvation Plc

44. Case Study 3 /2 2. Inventory Valuation Mr. Oluwatoberu conducts a comprehensive assessment of Salvation Plc’s inventory to determine its value accurately This involves physically inspecting the inventory, categorizing it based on its condition, and determining its market value The correct valuation of inventory ensures that it is sold at fair prices, potentially maximizing the proceeds available for debt repayment 3. Debt Recovery Mr. Oluwatoberu initiates efforts to recover outstanding debts owed to Salvation Plc He contacts customers with outstanding balances, sends reminder letters, and, if necessary, takes legal action against debtors The recovered funds are documented in the receivership account and used to reduce the company's debt 4. Cost Reduction Measures Mr. Oluwatoberu endeavors to minimize expenses during the receivership process This includes renegotiating contracts, downsizing certain operations, and implementing cost-saving measures By reducing unnecessary expenditures, Mr. Oluwatoberu can allocate more funds towards debt repayment Salvation Plc

45. Case Study 3 /3 5. Transparent Financial Reporting Mr. Oluwatoberu ensures that all financial transactions and activities are accurately recorded in the receivership account This includes maintaining a detailed record of assets, liabilities, income, expenses, recoveries, and payments made to creditors By providing transparent financial reporting, Mr. Oluwatoberu enhances trust among stakeholders and facilitates the receivership process 6. Regular Communication Mr. Oluwatoberu maintains open lines of communication with Salvation Plc's creditors, keeping them informed about the progress of the receivership process He provides periodic updates on debt recovery efforts, inventory sales, and planned distributions to creditors. Effective communication fosters transparency and instills confidence in the receivership proceedings With these solutions in place, Mr. Oluwatoberu can effectively navigate the receivership process for Salvation Plc, manage its affairs professionally, and maximize debt recovery for the benefit of the company's creditors Salvation Plc

46. Indian Court Protects Employees' Payments During Liquidation Proceedings /1 The Supreme Court of India ("SC") has held that in the event of liquidation of a company, claims of employees have to be considered by the Official Liquidator of the company and not by the debt recovery Tribunal ("DRT"). The SC made this decision in the case of bank of Maharashtra v. Pandurang Keshav Gorwardkar & Ors and laid down certain rules for deciding employee claims. Facts Paper and pulp Conversions Limited (‘Company’) had taken a loan from Bank of Maharashtra ("Appellant") in the year 1980. Upon facing liquidity problems, the Company closed its operations in 1992 followed by an order for liquidation by the Board of Industrial Financial Reconstruction ("BIFR"). The Appellant filed proceedings against the Company and its directors for recovery of certain amounts with future interest. The DRT ordered for payment of sums to the Appellant and held that in the event of the Company failing to repay the due and outstanding amounts, the Appellant was entitled to sell all the properties to recover such amounts. Simultaneously, recovery proceedings were initiated by employees of the Company ("Respondents") before the DRT praying for registration of their claims before auctioning of the properties by the Appellant. The Recovery Officer auctioned the movable properties of the Company and received certain amounts of which a part was kept aside towards the employees’ likely claims. Almost immediately, the employees filed a writ petition before the Bombay High Court ("Bombay HC") for appointment of a provisional liquidator and for staying further proceedings before the DRT. The writ was opposed by the Appellant. The Bombay HC passed an order for liquidation of the Company and appointment of an Official Liquidator. The Bombay HC also held that the jurisdiction to determine the payment and its priorities totally vested with the DRT and directed the DRT to retain INR 11,755,000 (amount claimed by the employees) until the claim of the employees was determined leading to an appeal before the SC.

47. Indian Court Protects Employees' Payments During Liquidation Proceedings /2 Issue The issue before the SC was whether in case of liquidation of a company, the claims of the employees which rank pari passu to the creditors’ claims, should be considered by the Official Liquidator or the DRT. Arguments The Appellant had a two-fold argument. The first being that no rights could be claimed by the employees over the security held by a bank or financial institution and that the DRT lacked the requisite competence to decide on adjudication of their claims. The purpose of DRT is adjudication and recovery of dues of banks or financial institutions and not employee related dues, which should be dealt with by an appropriate forum such as the Industrial Tribunal. Secondly, if the debtor company is in liquidation and the security has been sold in proceedings before the DRT, then the sale proceeds should be distributed by taking into account the pari passu charge to the limited extent of the "employees portion". It was argued that the Company was in the process of starting their liquidation process and the employees had no claims on the assets of the Company or any standing to approach the DRT to participate in a proceeding filed by a bank or financial institution. The employees on the other hand contended that the DRT had the right to anticipate not only a situation when the Company is in liquidation but also when the Company is not in liquidation, will be rendered as an empty shell if the assets of the Company are sold and the proceeds are handed over to financial institutions and banks. With regard to the claims of the creditor, it was argued that the official liquidator represented the entire body of creditors and the rights of the employees rank pari passu with that of the secured creditors.

48. Judgment and Analysis /1 The SC while analyzing the arguments, held that the employee’ dues were pari passu with secured creditors under section 529 of the Companies Act, 1956 (duly amended from time to time) ("Act") and a combined reading of section 529A and provision to section 529(1)(c) of the Act indicates that where a company is in liquidation, a statutory charge is created in favour of the employees in respect of their dues over the security of every secured creditor and this charge is pari passu with that of the secured creditor. Such statutory charge of the secured creditor is limited to the extent of the employees’ portion in relation to the security held by the secured creditor in the company. In view of the observations, the SC laid down certain rules for the determination of the claims of the employees: 1. Statutory charge is created in favor of employees for their dues which is pari passu with that of the secured creditor when a company is in liquidation or when the assets of the company have been sold for the recovery of dues but before the proceeds realized from the sale have been disbursed. However, the same is limited to the extent of employee’s portion in relation to the security held by the secured creditor of the debtor company and will be decided on the date of the liquidation order.

49. Judgment and Analysis /2 2. Prior to full and final disbursement of sale proceeds if the debtor company goes into liquidation and subsequently Official Liquidator is appointed, disbursement of undisbursed sale proceeds by DRT can only be done after giving notice to and hearing the liquidator. In the event of claims by employees, the DRT has two options i . either pay off the bank or the financial institution as per the recovery certificate after securing an indemnity bond of restitution of the amount of the employees’ dues as may be finally determined by the Official Liquidator, or ii. set apart tentatively, a portion of the undisbursed amount towards employees’ dues in the ration as per the illustration in Section 529(3)(c) of the Act and disburse the balance amount to the bank on an undertaking to restitute the amount to the extent of the employees’ dues as may be finally decided by the Official Liquidator. The first option must be exercised only in the situation where no application for distribution of employees’ dues against the company has been made by the Official Liquidator or the employees before the DRT. Where the sale of security has been affected in lieu of DRT’s recovery certificate, the distribution of proceeds has to be made by the DRT alone according to Section 529A of the Act and by no other authority. 5. The employees acquire the standing of the secured creditors on and from the date of order of liquidation and become entitled to the distribution of sale proceeds.

50. Practice Questions on Liquidator’s Final Statement of Receipts and Payments The following is the Balance Sheet of Poddar Ltd. which is in the hands of the liquidator: Poddar Ltd. Statement of financial Position as at 31/12/2018 Non-Current Asset N Property Plant and Equipment 200,000 Current Asset Inventory 120,000 Receivables 240,000 Cash 40,000 Profit and Loss Account 300,000 900,000 Equity and Liability Share Capital: 1,000, 6% Preference Shares of N100 each, fully paid 100,000 2,000, Equity Shares of N100 each fully paid 200,000 2,000, Equity Shares of N100 each called N.75 150,000 Loan from Bank (On security of stock) 100,000 Payables 350,000 900,000

51. Practice Questions on Liquidator’s Final Statement of Receipts and Payments The assets realised the following amounts (after all costs of realization and liquidator’s commission amounting to N5000 paid out of cash in hand N40,000 as per balance sheet): N Property Plant and Equipment 168,000 Inventory 110,000 Receivables 230,000 Calls on partly paid shares were made but the amounts due on 200 shares were found to be irrecoverable. Prepare Liquidator’s Final Statement of Receipts and Payments. In the books of Poddar Ltd. (In Liquidation) Liquidator’s Final Statement of Receipts and Payments A/c N N Liquidator’s Remuneration 5,000 Payables 350,000 Preference Shareholders 100,000 Equity Shareholders @N10 on 2000 shares 20,000 475,000 Cash 40,000 Asset Realized: Property Plant and Equipment 168,000 Inventory (110,000-100,000) 10,000 Receivables 230,000 (448,000) Proceeds of call on 1,800 Equity Shares @ N15 27,000

52. Practice Questions on Liquidator’s Final Statement of Receipts and Payments Notes: Return per Equity Share N Cash available before paying Preference Shareholders 93,000 (N. 548,000-N455,000) Add: Notional calls 1,800 shares (2000-200) x N25 45,000 138,000 Less: Preference Share Capital 100,000 Available for Equity shareholders 38,000 Return per share= ___ N38,000__ = N 10 3,800(4,000-200) And loss per equity share can also be calculated as under:- N N Equity Share Capital 350,000 Less: Forfeited amount in respect of 200 shares 15,000 335,000 Add: Deficiency as regards pref. Shareholders (100,000-93,000) 7,000 Total Deficiency 342,000 Deficiency per share 342,000 = 90 3,800 Notes: Calls to be made N15 per share (N 90-75) on 1,800 shares.

53. Balance Sheet for Receivership Question: A question has arisen as to the treatment of certain items in the preparation of a balance-sheet for receivership purposes. A receiver was appointed for a textile plant as of 2020, and has requested an audit at close of business that date. Included in the assets is an item representing unamortized discount on gold notes and certain other items such as prepaid insurance. 1. Should the auditor write these items off through a surplus adjustment, or does the responsibility rest with the receiver? Bear in mind, the receiver commences operations on the basis of the audit. 2. No appraisal has been made. Will an ordinary balance-sheet meet requirements? The company manufactures cloth and the finishing is done by an affiliated company. 3. Is the finishing charge a manufacturing expense or a deduction from sales? 4. All production of current period is in inventory. How shall finishing charge be treated? Answer: As to the treatment of deferred charges, it seems that the balance sheet should show the condition of the company as such, which means that the unamortized discount on gold notes and all similar deferred charges would be included. As a second step, the receiver will probably want to have a balance-sheet in which such valueless items as unamortized discount on gold notes will be eliminated. However, there seems to be no reason why unexpired insurance should not be carried as an asset on the books of the receiver. It would seem that the plant property could properly be carried in the balance-sheet at its value as shown by the books of the company, in the absence of an appraisal. In any case the basis of valuation of this and other assets should be shown on the balance-sheet.

54. Problems on Liquidation of Companies: Preparation of Statement of Affairs to the Meeting of Creditors Sri Gobinda Chandra Sadhukhan is appointed liquidator of Sun Co. Ltd in voluntary liquidation on 1st July 1993. Following balances are extracted from the books on that date: N N Capital: Machinery 45,000 24,000 shares or N5 each 120,000 Leasehold Properties 60,000 Reserve for bad debts 15,000 Stock-in-trade 1,500 Debentures 75,000 Book Debts 90,000 Bank Overdraft 27,000 Investments 9,000 Liabilities for purchases 30,000 Calls-in-Arrear 7,500 Cash in hand 1,500 Profit and Loss Account 52,500 67,000 267,000 The following assets are valued as under: N Machinery 90,000 Leasehold Properties 109,000 Investments 6,000 Stock-in-trade 3,000 Bad Debts are: N 3,000 and the doubtful debts are N 6,000 which are estimated to realise N 3,000. The Bank Overdraft secured by deposit of title deeds of Leasehold Properties. Preferential Creditors are N 1,500. Telephone rent outstanding is N 120. You are required to prepare a Statement of Affairs to the meeting of Creditors.

55. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Assets Estimated Realizable Value Assets not specially pledged N Cash in hand 1,500 Bad debts ( N 90,000-N6,000) 84,000 Calls-in-Arrear 7,500 Investments 6,000 Stock-in-trade 3,000 Machinery 90,000 192,000 Asset Pledged Estimated Due to Deficiency Surplus Realisable secured Ranking as Carried to Values Creditors Unsecured Last column N N N N Leasehold Propertise 109,000 27,000 _____ 82,000 Estimated Surplus from assets specially pledged 82,000 Estimated total assets available for preferential creditors, debenture holders secured by a floating charge and unsecured creditors 274,000

56. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Summary of Gross Assets Gross realizable value of assets especially Pledged N109,000 Other Assets N192,000 N301,000 Gross Liabilities: Liabilities Secured Creditors to the extent to which claims are estimated N to be covered by assets specially 27,000 pledged 1,500 Preferential Creditors 1500.00 Estimated balance of assets available for debenture secured 272,500 by a floating charge and unsecured creditors. 75,000 Debenture holders secured by a floating charge 75,000 197,500 Estimated surplus as regards debenture holders Unsecured creditors Liability for purchases N30,000 Outstanding telephone bill N 120 30,120 30,120 133,620 Estimated surplus as regards Creditors 167,300

57. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Preparation of Statement of Affairs and the Deficiency Account The following information is extracted from the books of Unlucky Ltd. on 31st July 1983, on which date a winding-up order was made: N Unsecured Creditors 38,000 Salaries due for 5 months 2,000 Bills Payable 10,600 Debtors- good 43,000 Doubtful (estimated to produce N 6,200) 13,000 Bad 8,800 Bills Receivable (Goods N1,000) 1,600 Bank Overdraft 4,000 Land (estimated to produce N50,000) 36,000 Stock (estimated to produce N58,000) 82,000 Furniture and Fixtures 8,000 Cash in Hand 400 Estimated Liabilities for bills discounted 6,000 Secured Creditors holding first mortgage on Land 40,000 Partly Secured Creditors holding secured mortgage on land 20,000 Weekly wages unpaid 600 Liabilities under Workmen’s Compensation Act, 1925 200 Income-tax due 800 5000, 9% Mortgage Debentures of N 10 each, interest payable To 30 th June and 31 st December, paid to 30 th June 1983 50,000

58. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Share Capital 2,000, 10% Preference Shares of N 10 each 20,000 5000 Equity Shares of N10 each 50,000 General Reserve since 31 st December 1979 10,000 In 1979 the company earned a profit of Rs. 45,000 but thereafter it suffered trading losses totaling Rs. 58,400. The Company also suffered a speculation loss of Rs. 5,000 during 1980. Excise authorities imposed penalty of Rs. 35,000 in 1981 for evasion of tax which was paid in 1982. From the foregoing information, prepare the Statement of Affairs and the Deficiency Account. Solution Unlucky ltd. (In Liquidation) Statement of Affairs As at 31.7.1983 Assets: Estimated Residual Value N Asset not specifically pledged Cash in hand 400 Bills Receivable 1,000 Trade Debtors 49,200 Stock 58,000 Furniture 8,000 116,000

59. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Assets not specifically pledged Estimated Due to Deficiency Surplus Realisable Secured Ranking as Value Creditors Unsecured N N N Land 50,000 60,000 10,000 ____ Nill (N. 40,000+N.20,000) Estimated total assets available for preferential Creditors, Debenture holders secured by a floating charge and unsecured Creditors ________ 116,000 Summary of Gross Assets: Gross realizable value of assets Specially pledged N. 50,000 Other Assets N. 116,000 N. 116,000 Gross Liabilities Liabilities (To be deducted from surplus or added to deficiency as the case may be). 50,000 Secured Creditors to the extent of which claims are estimated to be covered by assets specially pledged 3,200 Preferential Creditors 3,200 113,400

60. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Estimated balance of assets available for debentures holders Secured by a floating charge and unsecured creditors. Debenture holders secured by a floating charge N. 50,000 50,375 Interest due for 1 month (July 1993) N. 375 50,375 Estimated surplus as regards debenture holders 63,025 69,000 Unsecured Creditors 69,000 172,575 Estimated deficiency as regards Creditors (5,975) Issued and Called up Capital: 2000, 10% Preference Shares of N. 10 each fully paid 20,000 5000 Equity Shares of N.10 fully paid 50,000 Estimated deficiency as regards contribution (75,975) Notes: 1. Preferential Creditors N Weekly Wages 600 Liability for Workmen’s Compensation Act, 1925 200 Income-tax-due 800 Salaries (for 4 months) 1,600 3,200

61. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 2. Unsecured Creditors N Unsecured Creditors 38,000 Bills Payable 10,600 Liability on Bills Discounted 4,000 Salaries (for the month) 6,000 Partly Secured Creditors 10,000 (N. 20,000-N10,000) _____ 60,000 Deficiency Account Items contributing to Deficiency N 1. Excess of capital and liabilities over assets on 31.12.1979 Nill as shown by the balance sheet. 2. Net dividend and bonuses declared during the period from Nil 1.1.1990 to 31.7.1938 3. Net Trading losses after charging depreciation, taxation, interest on debentures etc. (loss after 1979, N 58,400 plus N 375 for debenture interest of 1 month) 58,775 4. Losses other than trading losses written-off or for which provision has been made in books during the same period. Speculation Loss N 5,000 Penalty imposed by excise authorities N35,000 40,000

62. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 5. Estimated losses now written off or for which provision has been made for the purpose of preparing the statement. N Bills Receivable 600 Debtors 15,600 Stock 24,000 Contingent Liabilities for bills Discounted 6,000 46,200 6. Other items contributing to deficiency Nil 144,975 Items reducing deficiency: 7. Excess of assets over capital and liabilities on 31.12.1979 (10,000) as shown in Balance Sheet. 8. Net Trading profit (after charging depreciation, taxation, interest on debentures etc.) (45,000) 9. Profit and Income other than trading profits Nil 10. Other items reducing deficiency – Profit Expected on Realization of Land. (14,000) Total Deficiency as shown by Statement of Affairs 75,975

63. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Preparation of Liquidators Final Statement of Account: The summarised Balance Sheet of Mathew Ltd. as on 31.3.1998, being the date of voluntary winding up is as under: Liabilities N Assets N Share capital Land and Building 386,000 12% Cum. Pref. Shares 10,000 Plant and machinery 821,000 Shares N100 each fully paid up 1,000,000 Stock-in-trade 184,000 Equity Share Capital Book Debts 1,337,000 5000 Equity shares of N100 each P&L A/c 372,000 N60 per share called up and paid up 300,000 5000 Equity Shares of N100 each, N50 per share Called up and paid up 250,000 Paid up Share Capital 1,550,000 15% Debentures 400,000 Preferential Creditors 105,000 Bank Overdraft 303,000 Trade Creditors 742,000 ________ 3,100,000 3,100,000 Preference Dividend is in arrears for two years. By 31.3.1999, the assets realised were as follows: N Land and Building 984,000 Stock-in-Trade 163,000 Plant and Machinery 712,000 Book Debts 1,191,000 Expenses of liquidation is N54,000. The remuneration of the liquidator is 3% of the realization. Income Tax payable on liquidation is N44,500. Assuming that the final payments are made on 31.3.1999, prepare the liquidator’s Final Statement of Account.

64. Statement of Affairs Sun Co. Ltd. As at 1.7.1993 Solution In the books of Mathew Ltd. Liquidator’s Final Statement of Account Dr. ___________________________ Cr. N N N To Asset realized By Liquidator’s Remuneration 91,500 Land and Building 984,000 (@3% on N3,050,000) Stock-in- Trade 163,000 Liquidator’s Expenses 54,000 Plant and Machinery 712,000 Debenture holders Books Debts 1,191,000 Principal 400,000 3,050,000 Add: Interest 60,000 Calls in Arrear 460,000 On 5,000 shares Preferential Creditors 149,500 @ N4 per share 20,000 ( i.e Creditors + Income Tax) Bank Overdraft 303,000 Trade Creditors 742,000 Pref Shareholders Principal 1,000,000 Add: Arrear Div. (2 years) 240,000 1,240,000 Equity Shareholders A/C 30,000 (bal. fig.) i.e., Refund on ________ 5,000 shares @ N6 per share ________ 3,070,000 3,070,000

65. Conclusion

66. Recommendations

67. Recommendations

68. Prof. Godwin Emmanuel Oyedokun Professor of Accounting and Financial Development Lead City University, Ibadan, Nigeria Principal Partner; Oyedokun Godwin Emmanuel & Co (Chartered Accountants, Tax Practitioners & Forensic Auditors) [email protected] ; [email protected] [phone], & [phone]