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In: Accounting

Q2. A liquidator was appointed after Rock Bottom Pty Ltd was declared insolvent on 1 July...

Q2. A liquidator was appointed after Rock Bottom Pty Ltd was declared insolvent on 1 July 2018. The company’s assets realised $14,250,000. This came from the sale of the secured land and buildings for $7,500,000 and other assets which were sold for $6,750,000.

The creditors totalled $16,350,000, and were made up of the following amounts:

Secured creditor $9,000,000, receiver’s costs when realising secured asset $150,000, liquidator’s expenses $600,000, unsecured trade payables $2,400,000, tax payable $1,050,000, local government rates $300,000, staff wages payable $900,000, executive directors’ wages payable (5 directors) $450,000, staff leave entitlements $150,000, executive directors’ leave entitlements (5 directors) $150,000, unsecured bank overdraft $750,000, and dividends payable $450,000.

REQUIRED

You are required to rank the above creditors and then to calculate how much each creditor would be paid.

Expert Solution

The following is the rank for each debt -

1. Secured Creditors

Allotment after 4-7

2. Receivers Cost

3. Liquidator Expenses

4. Taxes Due

4. Government payments

6. Staff wages payable

7. Staff leave entitlements

8. Unsecured bank OD

8. Trade payables

9. Excecutive director wages

9. Excecutive director leave entitlements

10. Dividends

Settlement of Claims

	Claim	Settled	Balance
1. Secured Creditors	9,000,000.00	7,500,000.00
Allotment after 4-7		1,500,000.00	-
2. Receivers Cost	150,000.00	150,000.00	-
3. Liquidator Expenses	600,000.00	600,000.00	-
4. Taxes Due	1,050,000.00	1,050,000.00	-
4. Government payments	300,000.00	300,000.00	-
6. Staff wages payable	900,000.00	900,000.00	-
7. Staff leave entitlements	150,000.00	150,000.00	-
8. Unsecured bank OD *	750,000.00	500,000.00	-
8. Trade payables *	2,400,000.00	1,600,000.00	-
9. Excecutive director wages	450,000.00	-	-
9. Excecutive director leave entitlements	150,000.00	-	-
10. Dividends	450,000.00	-	-
		14,250,000.00
* Since full fund to settle is not available. It will be settled in pro rata basis

Fund available	2,100,000.00
TO be allocated	3,150,000.00

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