A trading company Endesha Ltd. has experienced severe financial difficulties in recent times and is currently insolvent. A voluntary winding up petition will soon be filed and management is considering either liquidation or reorganisation. The chief accountant has produced the following balance sheet as if the company were a going concern:

Balance Sheet as at 31 March 1999

Sh. '000'

Sh. '000'

Ordinary share capital

Retained earnings (deficit)

Long term liabilities:

Note payable (secured by lien on land and buildings)

Current liabilities:

Creditors

Accrued expenses

Note payable (secured by stocks)

100,000

(64,000)

36,000

200,000

60,000

18,000

75,000

389,000

Fixed assets:

Land

Building (NBV)

Equipment (NBV)

Intangible assets

Investments in securities

Current assets:

Stocks

Debtors

Prepaid expenses

Cash at bank

100,000

110,000

80,000

15,000

305,000

15,000

41,000

23,000

3,000

2,000

389,000

Additional information

The land and buildings are in the prime location and can be sold for 10% more than their book value. But the equipment may not get a buyer unless the price is reduced. It is expected to fetch only 40% of its current book value.

Administrative costs of Sh.21.5 million are projected if liquidation of the company does occur.

By spending Sh.5 million for repairs and marketing costs, stocks currently held can be sold for Sh.50 million.

Accrued expenses include salaries of Sh.13 million. Of this figure, one executive is owed a total of Sh.3 million but is the only employee whose amount due is in excess of the statutory limit. Payroll taxes withheld from salaries and wages but not yet remitted to the Kenya revenue Authority total Sh.3 million. However, company records currently show only Sh.1 million portion of this liability.

The investments reported on the balance sheet have appreciated in value since acquisition and are now worth Sh.20 million. Dividends of Sh.500,000 are currently due from these investments, but not yet recognised.

Interest of Sh.5,000,000 on the long-term liabilities has not been accrued for the current financial year.

Debtors are estimated to be collectible for Sh.12 million.

A refund of Sh.1 million will be received from the various prepaid expenses but the company's intangible assets have no resale value.

Required:

A statement of affairs in accordance with the requirements of the company's Act, 1948, for 31 March 1999. (20 marks).