Question

ABC Company is bankrupt and has undergone corporate liquidation. Presented below is its statement of financial position before the start of the liquidation: Cash 390,000 Accounts Payable 130,000 Machinery 650,000 Salaries Payable 260,000 Building 1,560,000 Income tax Payable 390,000 Loan Payable 520,000 Mortgage Payable 650,000 Contributed capital 1,040,000 Deficit (390,000)

• Liquidation expenses amounting to P780,000 were paid

• The loan payable is secured by the machinery with fair value of P390,000.

• The mortgage payable is secured by the building (fair value equal its book value).

• At the end of liquidation, the holder of loan payable received P442,000.

1. What is the amount received by the holder of accounts payable at the end of liquidation?

2. What is the amount of net free assets available at the end of liquidation?

Answer 1

Statement of liquidation
Cash			390000
Add: Sale of Building			1560000
Add: Sale of Macinery			390000
			2340000
Less: Liquidation expense			780000
Less: Payment to
Secured creditor with Fixed Charge		650000
Mortagae Payable
(Fully covered by against Building)
Loan Payable			390000
(Covered against Machinery, But Fair value of Macinery is P390000 only)
Preferential creditor
Salaries Payable			260000
Loan Payable (442000-390000)			52000
(as mentioned in question, payment made to loan payable P442000)
			2132000
Amount available for unsecured creditors		208000
Unsecured Creditor
Income tax Payable		(208000*39/52)	156000
Accounts payable		(208000*13/52)	52000
(Amount to be distributed in the ratio 39:13)
Amount available for Shareholder		0

1. Amount received by the holders of Accounts Payable is P52000.

2. At the end of liquidation their is no net free assets available .