Question

The Big Water Company is in liquidation. All creditors have been paid out in full, leaving $120,000 available for distribution to shareholders.

The following information is extracted from the current balance sheet:

Big Water Company
Issued Capital	$	$
100,000 7% cumulative preference shares, $0.20 uncalled		80,000
200,000 ‘A’ ordinary shares, fully paid		200,000
200,000 ‘B’ ordinary shares, $.50 uncalled	100,000
Less: Calls in arrears: $0.10 per share (for 100,000 shares)	(10,000)
Add: Calls in advance : $0.50 per share (for 40,000 shares)	20,000	110,000
Paid up Capital		390,000
Reserves:
General Reserve	20,000
Asset Revaluation Reserve	40,000	60,000
Accumulated Losses		(20,000)
Owner’s Equity		430,000

Required

Prepare a schedule showing how the funds are made available to, or how the calls are made, for each class of shareholder, taking into consideration the preference shareholders, who have priority in a winding up in relation to the return of the capital.

Answer 1

Schedule of payment on liquidation

		Amount $
Receipts
a. Preference shares uncalled (100,000×0.2)		20000
b. 'B' ordinary shares calls in arrears collected(100000×0.1)		10000
c.B ordinary shares uncalled(100000×0.5)		50000
d. General eserves		20000
e.asset accumulation reserve		40000
Less:- Accumulated loss		(20000)
BALANCE AVAILABLE FOR DISTRIBUTION.		120000
1.Cmulative preference share holders of 100,000	100,000
2. Ordinary ahares of A of 200,000 gets $20 per share Ordinary share B get $20 per share(as ordinary share holders bear loss of $380000 )	20000