Distribution to different classes of shareholders | My Assignment Tutor

Question 18.3Distribution to different classes of shareholders ⋆ LO8On 30 April 2023, Agapanthus Ltd went into voluntary liquidation. At that date, equitycomprised:Share capital:100  000 preference shares issued for $2 and fully paid $ 200  000 220  000 ordinary shares issued for $2 and fully paid 440  000 160  000 ‘A’ ordinary shares issued for $2 and paid to 1.20 192  000 20  000 ‘B’ ordinary shares issued for $2, called and paid to $1 20  000 852  000  Retained earningsTotal equity(512000)$ 340000 The liquidator proceeded to realise all of the company’s assets. The loss on liquidationamounted to $128  000 and, after paying sundry creditors, there was a cash balance of$212  000 available for distribution to the shareholders. (The constitution givespreference shareholders a prior claim to return of capital, and other shareholders are torank equally, based on the number of shares held.)RequiredPrepare a statement of the distribution to shareholders supported by a detailedexplanation of the apportionment of any cash among the various classes ofshareholders.Liquidator’s Statement of Receipt and Payments Receipts $Payments $Balance after payingliabilities.212 000Call on ‘A’ Ordinary 64 000Call on ‘B’ Ordinary 12 000288 000Distribution to:Preference S/holders 200 000Ordinary S/holders 88 000288 000 Distribution of cash No of Paid to Notional NotionalActual DeficiencySharesCallRefund40c$88 000Refund(Call)$shareOrdinary‘A’ ordinary‘B’ ordinary$$–$220 000 440 00088 000 352 000160 000 192 000 128 00064 000 (64 000) 256 00020 00020 000 20 0008 000 (12 000)32 000400 000 652 000 148 000160 00012 000 640 000Cash available*Deficiency**Total notional cash(12 000)12 000640 000 .160 000 Total notional cash per share = $160 000 ÷ 400 000 = 40c per share* $12 000 = $212 000 – $200 000 (preference shareholders)** Alternatively $640 000 = $128 000 + $512 000Question 18.6Order of payment of debt and shareholders’ distributions ⋆ LO5, 7Peony Ltd went into liquidation on 31 March 2023, its equity being as follows: 75000 ordinary shares issued and fully paidRetained earnings$ 175000(35600)$ 139400Debts proved and admitted for payment by the liquidator were:Debentures (secured by circulating security interest)Mortgage loan (secured over land and buildings)$ 100000240000Unpaid annual leave45800Employee retrenchment payments56400Director’s salary8400Directors’ fees2400PAYG tax instalments6200Accounts payable125000Liquidation expenses1300Liquidator’s remuneration5000                              The land and buildings were seized by the secured creditor and sold to repay themortgage loan. Surplus funds amounting to $5000 were forwarded to the liquidator. Allother assets were sold and realised $230  000. Any calls which the liquidator may need tomake are expected to be recoverable.RequiredPrepare the Cash account (show debts in order of priority of payment) and theShareholders’ Distribution account for Peony Ltd. (Show all calculations.)Cash Proceeds on sale ofassets230 000Net proceeds from land& buildings5 000235 000PAYG instalmentsAccounts payable1 08521 875235 000 Liquidation expenses 1 300Director’s salary 2 000Annual leave 45 800Retrenchment payments 56 400Debentures 100 000Liquidator’s remuneration 5 000Unsecured:210 500Director’s salary 1 120Directors’ fees 420Total debts amount to: SecuredUnsecured$100 000250 500350 500Cash from proceeds of sale of assets235 000Deficiency115 500 As there is a deficiency to pay creditors, and there is no amount to be called up on ordinaryshares, the amount available is insufficient to satisfy all creditors’ claims. The deficiencymust be borne in reverse order of priority. Section 556 of the Corporations Act provides thatcertain creditors, namely wages, annual leave and retrenchment payments, will be paid priorto the floating charge security.Cash available for unsecured creditors = $24 500**$24 500 = $235 000 [receipts] – $210 500 [payments to debenture holders and preferentialunsecured creditors]Cash per $1 owed = $24 500 /140 000 = 17.5c per $1 CreditorsTotalamount$6 4002 4006 200125 000Payment @17.5c$ 1 1204201 08521 875Director’s salaryDirectors’ feesPAYG instalmentsAccounts payable140 00024 500 Shareholders’ Distribution Deficiency 175 000175 000Ord. share capital 175 000175 000 Question 18.9Ledger accounts for liquidation ⋆ ⋆ LO5, 8, 9A court order for the winding up of Snapdragon Ltd was made on 31 March 2023. Astatement of financial position prepared on that date was as follows:SNAPDRAGON LTDStatement of Financial Positionas at 31 March 2023Current assets Cash at bankCash in handAccounts receivable$ 400030046500InventoriesTotal current assetsNon‐current assetsPlant and equipment (at cost less depreciation)49500$ 10030096200Land and buildings (at cost)30000GoodwillTotal non‐current assets39500165700Total assetsCurrent liabilitiesAccounts payable26600029300PAYG tax instalments5700Accrued expensesTotal current liabilitiesNon‐current liabilities2000 $20 10% debentures5000400004000011% mortgage on land and buildingsTotal non‐current liabilities2000060000Total liabilitiesNet assetsShare capital100000$ 166000                                     40  000 7% cumulative preference shares issued for $1, called to 75c each200000 ordinary shares issued for $1, called to 75c each$ 30000150000$ 180000 Less: Calls in arrears: 4000 ordinary shares at 25c(1000)179000ReservesRetained earningsTotal equityNote: Arrears of preference dividends $4200.(13000)$ 166000         Additional information (a)Accrued expenses include:Interest on mortgageInterest on debentures$ 1000800 Wages (two employees, $1600 each) 3  200(b) Assets are expected to realise:Accounts receivable $ 16  400 Inventories10500Plant and equipment30000Unpaid calls500(2000 at 25c) (c)The mortgage holder took possession of the land and buildings and sold them for$60000, paying any residue to the liquidator.(d)The debentures are secured by a circulating security interest over the assets ofSnapdragon Ltd.(e)On 1 May 2023, the liquidator realised the assets in (b) for the above amounts.   The balance of the unpaid calls was treated as irrecoverable and the shares wereforfeited. (f)On 1 June 2023 the liquidator paid all liabilities and adjusted the rights ofshareholders. The constitution, regarding rights of shareholders in a winding up, givespreference shareholders a right to receive arrears of dividend.(g)(h)Uncalled capital (where required to be called up) proved to be recoverable.The winding up of the company was completed on 1 July 2023, costs ofliquidation being $3000.Required(a)Prepare the Liquidation account and the Shareholders’ Distribution account(show clearly any working in relation to final distribution to shareholders).(b)Prepare the Cash account. (a)Liquidation Carrying amount of assets:Retained earnings 13 000251 900Proceeds from Sale of Assets:Accounts receivable 16 400Inventories 10 500Plant and equipment 30 000Gain on disposal of securedasset (L&B)30 000Forfeited Shares Reserve 1 000Share of Deficiency:Preference 27 563Ordinary 136 437251 900 Accounts receivable 46 500 Inventories 49 500 Plant and equip. 96 200 Goodwill 39 500 Liquidation Expenses 3 000Arrears of Pref. Div 4 200Shareholders’ Distribution* Share of Deficiency:Preference 27 563Ordinary 136 437Return of Capital to:Preference 2 437Ordinary 12 063178 500Share capital:Preference 30 000Ordinary 148 500178 500 *After forfeiture of 2 000 ordinary shares.Share of cash:(After forfeiture of 2 000 ordinary shares for not paying calls in arrears.) No of Paid to Notional NotionalActual DeficiencySharesCallRefund31.092c$12 437Refund(Call)$2 437sharePreference$30 000$10 000$27 56340 000Ordinary198 000 148 50049 50061 56312 063 136 437238 000 178 50059 50074 00014 500 164 000Cash available(14 500)14 500DeficiencyTotal notional cash164 000 .74 000 Total notional cash per share = $74 000 ÷ 238 000 = 31.092c per share(b)Cash 4 300 Liquidation expenses3 000Debentures and Interest40 800 Salaries3 20016 400 Accounts payable29 300 Inventories 10 500 PAYG tax instalment 5 700Plant and Equipment 30 000 Arrears of preference dividend 4 200Net amount received fromsecured creditors39 000 86 200Calls in arrears (ordinary) 500Return of Capital:Preference 2 437Ordinary 12 063100 700 100 700Question 18.13Ledger accounts, given a summary of affairs ⋆ ⋆ LO8, 9Carnation Ltd went into liquidation on 31 March 2023. The summary of affairsprepared at that date is shown below:CARNATION LTDSummary of Affairsas at 31 March 2023Valuation Estimatedrealisablevalue(1) Assets not specificallycharged:Calls in arrears (500ordinary shares at 50c) $ 250$2005050     Sundry debtors 24  400 18  100Inventories 51  900 17  94076  600 36  290(2) Assets subject tospecific chargeCarryingamountEstimatedrealisablevalue $ 4000024500$ 4090024500     Less: Mortgage andaccrued interest    15  500 16  400$ 92  100 $ 52  690Total estimatedrealisable value$ 52  690(3) Less: Preferentialcreditors entitled topriority over theholders of a floatingcharge  (600)52  090(4) Less: Amount owingunder floating charge— bank overdraft(19  440)32  650(5) Less: Otherpreferential claims(1  400)31  250(6) Less: Unsecuredcreditors — ordinary(13  450)Estimated surplussubject to liquidationexpenses$ 17  800Share capitalPaid‐up capital:Issued preferenceshares: 21  000 sharesfully paid at $2$ 42  000Issued ordinaryshares: 30  000 sharescalled to $1.20, issuedfor $236  000Called capital 78  000Calls on ordinaryshares paid inadvance: 2000 sharesat 80c each1  600$ 79  600Balance of RetainedEarnings account,31/3/23$ 22  390DRExcept for the return of capital to shareholders, liquidation of the company wascompleted at 30 September 2023. The Cash account is shown below.CashCalls in arrears $   250 Liquidation expenses $ 1  130Cash in hand 50 Liquidator’s remuneration 2  400Receivables 17  260 Preferential creditors 2  000Inventories 34  020 Bank overdraft 19  440Land (net) 24  000 Unsecured creditors less discount 13  410   Surplus available to shareholders 37  200$ 75  580 $ 75  580The mortgage holder had taken possession of the land, sold it for $49  000, and paid theresidue to the liquidator after fully satisfying the mortgage claim.Preference shares are preferred to return of capital. All uncalled capital provedrecoverable.RequiredPrepare the Liquidation account and the Shareholders’ Distribution account as theywill appear after repayment of capital.Liquidation Carrying Amount of Assets:Receivables 24 400Inventory 51 900Liquidator’s Expenses &Remuneration3 530Interest on Mortgage 500Retained earnings 22 390102 720Proceeds on Sale of Assets:Receivables 17 260Inventory 34 020Creditors (discount) 40Gain on Disposal of SecuredAsset (Land)9 000Share of DeficiencyOrdinary 42 400Preference –102 720 Shareholders’ Distribution Liquidation (deficiency):Share Capital:Preference 42 000Ordinary (after final call)* 41 973Calls in Advance – Ordinary 1 60085 573 Ordinary 42 400 Cash payments:Ordinary (Calls in Advancerefund)1 173 Preference 42 00085 573 *$41 973 = $37 600 – $1 600 (calls in advance) + $5 973 (call – see table below)Share of cash (showing shares with calls in advance separately): No of Paid to Notional NotionalActual DeficiencySharesCallRefund58.6667c$42 000Refund(Call)$42 000sharePreference$42 000$–$–21 000Ordinary2 0004 000–1 1731 1732 827Ordinary28 00033 60022 40016 427(5 973)39 57330 00037 60022 40017 600(4 800)42 400Cash available to ordinary*(4 800) (4 800)42 400 .DeficiencyTotal notional cash17 600 Total notional cash per share = $17 600 ÷ 30 000 = 58.6667c per share* After payment to preference shareholders = $37 200 – $42 000= ($4 800)