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)