Question
Q1. A compulsory winding up in insolvency order was issued by the court in respect of Rock Bottom Ltd. The company had a capital of
Q1.A compulsory winding up in insolvency order was issued by the court in respect of Rock Bottom Ltd. The company had a capital of 65 000 fully paid ordinary shares of $1 each. The liquidator took possession of the company's assets which raised $873 145 on sale. Included in the sale proceeds was $221 000 from the disposal of the land and buildings.
The creditors submitted their claims and the following debts were admitted as proven:
Liquidation expenses
$3 900
Liquidator's remuneration
10 400
Mortgage loan secured on land and buildings
130 000
Additional mortgage loan on land and buildings
104 000
Employees' wages 5 employees for 2 weeks at $520 per week
5 200
Secretary's salary 3 weeks at $314 per week
942
Employees' holiday pay
6 500
Sales commission
650
Managing director's salary 4 weeks at $780 per week
3 120
Directors' fees
3 900
Trade creditors
104 000
Unsecured loan stock
130 000
Debentures (secured by circulating security interest)
390 000
PAYG tax instalment
1 014
Fringe benefits tax
2 600
GST
2 586
Required
Show the order of priority of payment of debts for Rock Bottom Ltd and calculate the amount payable to the company's ordinary unsecured creditors.
Answer:
Sale Proceeds
6,52,145
Other Assets
2,21,000
Land & Building
8,73,145
Total
Payments
Amounts
Liquidation Expenses
3,900
Liquidation Remuneration
10,400
Salaries & Wages
6,142
Taxes
6,200
Remaininig Salary Expenses
14,170
Unsecured Loans
1,30,000
Balance Mortagage
13,000
Debentures
3,90,000
Creditors
78,333
Total Payments
6,52,145
Balance unsecured Creditors = 1,04,000 - 78,333 = 25,667
Balance Mortagage = 2,21,000 - 1,30,000 - 1,04,000 = 13,000
Salaries & Wages = 942 + 5,200 = 6,142 ( Wages of Employees + Secretary Salary )
Remaining Salary Expenses = 6,500 + 650 + 3,120 + 3,900 = 14,170
Taxes = 1,014 + 2,600 + 2,586 = 6,200 (PAYG + GST + Fringe )
Question 2
a) With relation to associate companies what do you understand to be significant influence and how would you identify it? Include in your answer illustrative examples.
(10 marks)
b)How are inter-entity transactions dealt with when accounting for associate companies? Give examples.
(7 marks)
c)How would an investor account for losses made by an associate company?
(13 marks)
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