Illustrative example 33.2 demonstrates a summary of affairs prepared in the case of a creditors' voluntary winding up. This report is shown on the grounds of simplicity for learning purposes, as it avoids preparation of detailed schedules required by the report as to affairs. Preparation of a summary of affairs is illustrated using the format specified in ASIC's Form 509, entitled Presentation of summary of affairs of a company (see the ASIC website for a copy of this form). ILLUSTRATIVE EXAMPLE 33.2 Summary of affairs Fern Ltd resolved to wind up its affairs on 31 December 2023. Its statement of financial position prepared for internal purposes is shown in figure 33.2. FIGURE 33.2 Statement of financial position of the company winding up $130 000 100 000 50 $230 050 85 000 33 875 25 000 5 000 148 875 378 925 FERN LTD Statement of financial position as at 31 December 2023 Current assets Inventories Trade receivables (net) Interest receivable on bonds Total current assets Non-current assets Freehold property Plant and machinery (net) Goodwill 8% investments (due 31/03/26) Total non-current assets Total assets Current liabilities Trade creditors Bank overdraft (secured on freehold property) Other liabilities Total current liabilities Non-current liabilities 10% debentures (secured by a circulating security interest) 12% unsecured notes Total non-current liabilities Total liabilities Net assets Share capital 25000 10% preference shares issued at $1 and fully paid 60 000 ordinary shares issued at $1 and partly paid Less: Calls in arrears 5000 x 25c Reserves Retained earnings Total equity 115 000 25000 8925 148 925 50 000 100 000 150 000 298 925 $ 80 000 $ 25000 $ 60 000 (1 250) 58 750 83 750 (3 750) 80000 Additional information (a) Other liabilities included the following. Wages payable (for one person) Directors' fees payable Goods and services tax payable Rates payable for year ended 31/12/23 Long service leave payable Sick leave payable Workers compensation payable PAYG tax instalment payable $2 500 2000 1 500 1 000 750 375 300 500 $8925 (b) Assets were expected to realise the following estimated values. Freehold property Plant and machinery Trade receivables Goodwill 8% investments to be sold 'cum div.' Inventories Calls in arrears $135 000 20 000 90 000 nil 5000 95000 nil Required Prepare a summary of affairs as at 31 December 2023 for Fern Ltd. Solution ASIC's Form 509 is used in the preparation of a summary of affairs (see figure 33.3). Details are included in the body of the statement where necessary. FIGURE 33.3 Summary of affairs, Fern Ltd Estimated realisable values $ 90 000 FERN LTD Summary of affairs Assets and liabilities as at 31 December 2023 Valuation (show whether cost or net book amount) 1. Assets not specifically charged: (a) Interest in land b) Sundry debtors: Trade receivables (net book amount) $ 100 000 Calls in arrears 1 250 (c) Cash on hand (d) Cash at bank le Stock as detailed in inventories 130 000 Work in progress as detailed in inventories (g) Plant and machinery as detailed in inventories (net book amount) 33 875 (h) Other assets: 8% investments 5000 Interest on bonds 50 Goodwill (net carrying amount) 25 000 295 175 Assets subiect to specific charges. Freehold property 9000 20 000 5000 210 000 $ 8500 Estimated realisable values $ 90 000 FIGURE 33.3 Summary of affairs, Fern Ltd FERN LTD Summary of affairs Assets and liabilities as at 31 December 2023 Valuation (show whether cost or net book amount) 1. Assets not specifically charged: (a) Interest in land b) Sundry debtors: Trade receivables (net book amount) $ 100 000 Calls in arrears 1 250 (c) Cash on hand (d) Cash at bank le Stock as detailed in inventories 130 000 Work in progress as detailed in inventories g) Plant and machinery as detailed in inventories (net book amount) 33875 (h) Other assets: 8% investments 5000 Interest on bonds 50 Goodwill (net carrying amount) 25 000 295 175 2. Assets subject to specific charges: Freehold property $85000 Less: Amounts owing (25000 60 000 Total assets 355 175 Total estimated realisable values 9 000 20 000 5 000 210 000 110 000 320 000 320 000 3. Less: Preferential creditors entitled to priority over the holders of debentures under any floating charge Wages (2500) Long service leave (750) Sick leave (375) (3 625) 316375 4. Less: Amounts owing and secured by floating charge over company's assets 10% debentures (50 000) 266 375 5. Less: Preferential creditors Workers compensation (300) Estimated amount available for unsecured creditors 266075 6. Creditors (unsecured) Rates 1 000 GST 1 500 Directors' fees 2000 Unsecured notes 100 000 Trade creditors 115 000 PAYG tax instalments 500 220 000 46 075 7. Balances owing to partly secured creditors 8. Contingent assets, estimated to produce 9. Contingent liabilities estimated to rank for estimated deficiency/surplus Estimated surplus (subject to costs of liquidation) $ 46 075 Share capital Issued: 25 000 10% preference shares issued at $1 25 000 60 000 ordinary shares issued at $1 60 000 $ 85000 Paid up: 25 000 10% preference shares 25000 55 000 ordinary shares fully paid 55 000 5000 ordinary shares paid to 75c 3750 $ 83 750 Note the following points. (a) Estimated realisable value for assets subject to specific charges: $135 000 (estimated realisable value of freehold property) - $25000 (bank overdraft secured on freehold property) = $110 000. (b) Three creditors (wages, long service leave and sick leave) are given preference over circulating security interests (floating charge), assuming that wages were not payable to an excluded employee. (c) All unsecured creditors rank equally. The trial balance of Freyja Ltd on 14 July 20X1, the date on which the court ordered that the company be wound up, is presented below. FREYJA LIMITED TRIAL BALANCE as at 14 July 20X1 Debit Credit S 1,800 72,000 S 5,000 35,000 30,000 150,000 300,000 150,000 210,000 160,000 Cash Accounts receivable Allowance for bad debts Inventory Goodwill Land Buildings Accumulated depreciation: Buildings Plant and equipment Accumulated depreciation: Plant and equipment Accounts payable Tax payable Short-term loan (unsecured) Preference dividend payable Mortgage on land and buildings Retained earnings General reserve 75,000 Preference shares issued at $1 fully paid 150,000 A Ordinary shares issued for $2, paid to $1.50 100,000 B Ordinary shares issued for $1, called to 75 Call in arrears: 5,000 B Ordinary shares @ 25 70,000 49,000 15,000 7,500 110,000 179,950 38,500 75,000 225,000 75,000 1,250 $ 980,000 $ 980,000 Additional information (a) The liquidation expenses amounted to $5,200. (b) Other liabilities accepted by the liquidator but not yet recorded are: Interest on mortgage $ 3,000 Increase in accounts payable 2,500 Wages payable 3,500 Interest on short-term loan 700 (c) Freyja Ltd owes none of the wages indentified in (b) to excluded employees. (d) At the commencement of the winding up, the assets were expected to realise: Accounts receivable $ 64,000 Inventory 33,000 Land and buildings 190,000 Plant and equipment 42,000 (e) The mortgage holder took possession of the land and buildings and sold them for $200,000, paid off the mortgage and refunded the difference to the liquidator. (f) Calls in arrears on 5,000 B Ordinary shares realised $1,250 in cash. (g) The assets realised the following amounts in cash: Accounts receivable $ 65,000 Inventory 36,000 Plant and equipment 45,000 (h) Payments made on accounts payable after negotiation with the trade creditors was $69,250. (1) The constitution is silent on the question of arrears of preference dividends. 6) The order of priority for the return of capital provided for in the constitution is (1) preference shares and (2) ordinary shares. The constitution states that A Ordinary and B Ordinary shareholders rank equally regarding return of capital based on the number of shares held. Any calls necessary to adjust the rights of contributories are recoverable. Required 1. Prepare a report/summary of affairs as at 14 July 20X1. Base your report/summary on the example of Fern Ltd on pages 1248-1250 of the textbook. Assume wages payable will receive a preference over any debts secured by a circulating security interest and unsecured creditors for the purposes of this exercise (20 marks). Required 1. Prepare a report/summary of affairs as at 14 July 20X1. Base your report/summary on the example of Fern Ltd on pages 1248-1250 of the textbook. Assume wages payable will receive a preference over any debts secured by a circulating security interest and unsecured creditors for the purposes of this exercise (20 marks). 2. Prepare all the relevant journal entries in Freyja Ltd to wind up the company. Narrations are required. Show clearly the order of priority of payment to the creditors (40 marks). 3. Show clearly any workings in relation to the final distribution to shareholders (20 marks). 4. Prepare the liquidation account, the shareholder's distribution account and liquidator's receipts and payments (cash) account. Show all of the relevant detail in the account entries (i.e. do not aggregate transactions into one amount) (15 marks). Illustrative example 33.2 demonstrates a summary of affairs prepared in the case of a creditors' voluntary winding up. This report is shown on the grounds of simplicity for learning purposes, as it avoids preparation of detailed schedules required by the report as to affairs. Preparation of a summary of affairs is illustrated using the format specified in ASIC's Form 509, entitled Presentation of summary of affairs of a company (see the ASIC website for a copy of this form). ILLUSTRATIVE EXAMPLE 33.2 Summary of affairs Fern Ltd resolved to wind up its affairs on 31 December 2023. Its statement of financial position prepared for internal purposes is shown in figure 33.2. FIGURE 33.2 Statement of financial position of the company winding up $130 000 100 000 50 $230 050 85 000 33 875 25 000 5 000 148 875 378 925 FERN LTD Statement of financial position as at 31 December 2023 Current assets Inventories Trade receivables (net) Interest receivable on bonds Total current assets Non-current assets Freehold property Plant and machinery (net) Goodwill 8% investments (due 31/03/26) Total non-current assets Total assets Current liabilities Trade creditors Bank overdraft (secured on freehold property) Other liabilities Total current liabilities Non-current liabilities 10% debentures (secured by a circulating security interest) 12% unsecured notes Total non-current liabilities Total liabilities Net assets Share capital 25000 10% preference shares issued at $1 and fully paid 60 000 ordinary shares issued at $1 and partly paid Less: Calls in arrears 5000 x 25c Reserves Retained earnings Total equity 115 000 25000 8925 148 925 50 000 100 000 150 000 298 925 $ 80 000 $ 25000 $ 60 000 (1 250) 58 750 83 750 (3 750) 80000 Additional information (a) Other liabilities included the following. Wages payable (for one person) Directors' fees payable Goods and services tax payable Rates payable for year ended 31/12/23 Long service leave payable Sick leave payable Workers compensation payable PAYG tax instalment payable $2 500 2000 1 500 1 000 750 375 300 500 $8925 (b) Assets were expected to realise the following estimated values. Freehold property Plant and machinery Trade receivables Goodwill 8% investments to be sold 'cum div.' Inventories Calls in arrears $135 000 20 000 90 000 nil 5000 95000 nil Required Prepare a summary of affairs as at 31 December 2023 for Fern Ltd. Solution ASIC's Form 509 is used in the preparation of a summary of affairs (see figure 33.3). Details are included in the body of the statement where necessary. FIGURE 33.3 Summary of affairs, Fern Ltd Estimated realisable values $ 90 000 FERN LTD Summary of affairs Assets and liabilities as at 31 December 2023 Valuation (show whether cost or net book amount) 1. Assets not specifically charged: (a) Interest in land b) Sundry debtors: Trade receivables (net book amount) $ 100 000 Calls in arrears 1 250 (c) Cash on hand (d) Cash at bank le Stock as detailed in inventories 130 000 Work in progress as detailed in inventories (g) Plant and machinery as detailed in inventories (net book amount) 33 875 (h) Other assets: 8% investments 5000 Interest on bonds 50 Goodwill (net carrying amount) 25 000 295 175 Assets subiect to specific charges. Freehold property 9000 20 000 5000 210 000 $ 8500 Estimated realisable values $ 90 000 FIGURE 33.3 Summary of affairs, Fern Ltd FERN LTD Summary of affairs Assets and liabilities as at 31 December 2023 Valuation (show whether cost or net book amount) 1. Assets not specifically charged: (a) Interest in land b) Sundry debtors: Trade receivables (net book amount) $ 100 000 Calls in arrears 1 250 (c) Cash on hand (d) Cash at bank le Stock as detailed in inventories 130 000 Work in progress as detailed in inventories g) Plant and machinery as detailed in inventories (net book amount) 33875 (h) Other assets: 8% investments 5000 Interest on bonds 50 Goodwill (net carrying amount) 25 000 295 175 2. Assets subject to specific charges: Freehold property $85000 Less: Amounts owing (25000 60 000 Total assets 355 175 Total estimated realisable values 9 000 20 000 5 000 210 000 110 000 320 000 320 000 3. Less: Preferential creditors entitled to priority over the holders of debentures under any floating charge Wages (2500) Long service leave (750) Sick leave (375) (3 625) 316375 4. Less: Amounts owing and secured by floating charge over company's assets 10% debentures (50 000) 266 375 5. Less: Preferential creditors Workers compensation (300) Estimated amount available for unsecured creditors 266075 6. Creditors (unsecured) Rates 1 000 GST 1 500 Directors' fees 2000 Unsecured notes 100 000 Trade creditors 115 000 PAYG tax instalments 500 220 000 46 075 7. Balances owing to partly secured creditors 8. Contingent assets, estimated to produce 9. Contingent liabilities estimated to rank for estimated deficiency/surplus Estimated surplus (subject to costs of liquidation) $ 46 075 Share capital Issued: 25 000 10% preference shares issued at $1 25 000 60 000 ordinary shares issued at $1 60 000 $ 85000 Paid up: 25 000 10% preference shares 25000 55 000 ordinary shares fully paid 55 000 5000 ordinary shares paid to 75c 3750 $ 83 750 Note the following points. (a) Estimated realisable value for assets subject to specific charges: $135 000 (estimated realisable value of freehold property) - $25000 (bank overdraft secured on freehold property) = $110 000. (b) Three creditors (wages, long service leave and sick leave) are given preference over circulating security interests (floating charge), assuming that wages were not payable to an excluded employee. (c) All unsecured creditors rank equally. The trial balance of Freyja Ltd on 14 July 20X1, the date on which the court ordered that the company be wound up, is presented below. FREYJA LIMITED TRIAL BALANCE as at 14 July 20X1 Debit Credit S 1,800 72,000 S 5,000 35,000 30,000 150,000 300,000 150,000 210,000 160,000 Cash Accounts receivable Allowance for bad debts Inventory Goodwill Land Buildings Accumulated depreciation: Buildings Plant and equipment Accumulated depreciation: Plant and equipment Accounts payable Tax payable Short-term loan (unsecured) Preference dividend payable Mortgage on land and buildings Retained earnings General reserve 75,000 Preference shares issued at $1 fully paid 150,000 A Ordinary shares issued for $2, paid to $1.50 100,000 B Ordinary shares issued for $1, called to 75 Call in arrears: 5,000 B Ordinary shares @ 25 70,000 49,000 15,000 7,500 110,000 179,950 38,500 75,000 225,000 75,000 1,250 $ 980,000 $ 980,000 Additional information (a) The liquidation expenses amounted to $5,200. (b) Other liabilities accepted by the liquidator but not yet recorded are: Interest on mortgage $ 3,000 Increase in accounts payable 2,500 Wages payable 3,500 Interest on short-term loan 700 (c) Freyja Ltd owes none of the wages indentified in (b) to excluded employees. (d) At the commencement of the winding up, the assets were expected to realise: Accounts receivable $ 64,000 Inventory 33,000 Land and buildings 190,000 Plant and equipment 42,000 (e) The mortgage holder took possession of the land and buildings and sold them for $200,000, paid off the mortgage and refunded the difference to the liquidator. (f) Calls in arrears on 5,000 B Ordinary shares realised $1,250 in cash. (g) The assets realised the following amounts in cash: Accounts receivable $ 65,000 Inventory 36,000 Plant and equipment 45,000 (h) Payments made on accounts payable after negotiation with the trade creditors was $69,250. (1) The constitution is silent on the question of arrears of preference dividends. 6) The order of priority for the return of capital provided for in the constitution is (1) preference shares and (2) ordinary shares. The constitution states that A Ordinary and B Ordinary shareholders rank equally regarding return of capital based on the number of shares held. Any calls necessary to adjust the rights of contributories are recoverable. Required 1. Prepare a report/summary of affairs as at 14 July 20X1. Base your report/summary on the example of Fern Ltd on pages 1248-1250 of the textbook. Assume wages payable will receive a preference over any debts secured by a circulating security interest and unsecured creditors for the purposes of this exercise (20 marks). Required 1. Prepare a report/summary of affairs as at 14 July 20X1. Base your report/summary on the example of Fern Ltd on pages 1248-1250 of the textbook. Assume wages payable will receive a preference over any debts secured by a circulating security interest and unsecured creditors for the purposes of this exercise (20 marks). 2. Prepare all the relevant journal entries in Freyja Ltd to wind up the company. Narrations are required. Show clearly the order of priority of payment to the creditors (40 marks). 3. Show clearly any workings in relation to the final distribution to shareholders (20 marks). 4. Prepare the liquidation account, the shareholder's distribution account and liquidator's receipts and payments (cash) account. Show all of the relevant detail in the account entries (i.e. do not aggregate transactions into one amount) (15 marks)