AF 203 CORPORATE ACCOUNTING

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AF 203 CORPORATE ACCOUNTING

• Accounting for ,-
• Receiverships
• Liquidations
• and
• partial Liquidations

2
ROLE OF A RECEIVER

• Either
• SELL OFF SECURED ASSET(S) TO DISCHARGE THE LOAN
• Or
• MANAGE THE BUSINESS UNTIL THE LOAN IS REPAID

3
Example 1 (a)

• Cash 56000
• Loss on realising
• assets 7000
• Receivables 20000
• Inventory 43000

4
Example 1 (a)

• Loss on operations 3000
• Receivers expenses 320
• Receivers
• commission 1680
• Cash 5000

5
Example 1 (a)

• Overdraft 38000
• Accrued interest 2000
• Liquidation cash 12400
• Cash 52400

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WHEN WILL COMPANIES GO INTO LIQIDATION?

• After coming out of receivership

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WHEN WILL COMPANIES GO INTO LIQIDATION?

• After coming out of receivership
• When the entity is patently economically non
  viable

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WHEN WILL COMPANIES GO INTO LIQIDATION?

• After coming out of receivership
• When the entity is patently economically non
  viable
• When the equity holders choose to close down
  business operations of a going concern

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WHEN WILL COMPANIES GO INTO LIQIDATION?

• After coming out of receivership
• When the entity is patently economically non
  viable
• When the equity holders choose to close down
  business operations of a going concern
• When an entitys business activities are declared
  illegal

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PRIORITIES IN THE LIQUIDATION PROCESS

• Creditors secured on a fixed charge are entitled
  to collect monies owing through the appointment
  of a receiver

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PRIORITIES IN THE LIQUIDATION PROCESS

• Liquidators expenses
• Liquidators remuneration

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PRIORITIES IN THE LIQUIDATION PROCESS

• Preferential creditors-
• THE STATE Cannot keep track of what is owed
  by various entities and individuals.
• LOCAL AUTHORITIES Only for monies less than
  12 months in arrears
• EMPLOYEES Only for the first 600
  outstanding

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PRIORITIES IN THE LIQUIDATION PROCESS

• Ordinary creditors-
• CREDITORS ARISING FROM
• DAY TO DAY BUSINESS
• SECURED AND
• PREFERENTIAL CREDITORS
• NOT ALREADY PAID IN FULL
• All groups rank equally for payment

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PRIORITIES IN THE LIQUIDATION PROCESS

• Deferred creditors
• UNPAID CUMULATIVE PREFERENCE SHARE DIVIDENDS
  (Wharfdale Brewery Ltd. 1952)
• DIVIDENDS DECLARED BUT NOT PAID
• CONTRIBUTIONS OF CAPITAL PAID IN ADVANCE

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PRIORITIES IN THE LIQUIDATION PROCESS

• Shareholders
• IN THE ABSENCE OF A STATEMENT TO THE CONTRARY IN
  A COMPANYS ARTICLES OF ASSOCIATION, ALL
  SHAREHOLDERS RANK EQUALLY IN THE DISTRIBUTION OF
  ANY MONIES FROM A LIQUIDATION

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STATEMENT OF AFFAIRS

• Assets over which there is no lien at net
  realisable values
• Surpluses arising from the liquidation of the
  secured assets
• Sums classes of creditors are entitled to
• Residual amount allocated pro rata to the
  relevant class of creditors or shareholders

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LIQIDATORS ACCOUNTS

• LIQUIDATION ACCOUNT Equivalent of a realisation
  account on the closure of a non incorporated
  business
• LIQUIDATION RECEIPTS AND PAYMENTS Cash account
• SHARE EQUITY ACCOUNTS Consolidation and closure
  of the equity accounts

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Example 1(b)- LIQUIDATION ACCOUNT

• 
  
• Liquidation expenses 300
• Liquidation commission 2500

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Example 1(b)- LIQUIDATION ACCOUNT

• 
  
• Liquidation expenses 300
• Liquidation commission 2500
• Loss on,-
• repossessed equipment 1600
• disposal land / buildings 2000
• plant 50000
• receivables 1000
• inventory 1600

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Example 1(b)- LIQUIDATION ACCOUNT

• 
  
• Liquidation expenses 300
  Shareholders
• Liquidation commission 2500
  distribution 59000
• Loss on,-
• repossessed equipment 1600
• disposal land / buildings 2000
• plant 50000
• receivables 1000
• inventory 1600
  ______
• 
  59000 59000
  

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400
• Land/ buildings 28000
• Mortgage 5000 23000

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400
• Land/ buildings 28000
• Mortgage 5000 23000
• B Ltd 400

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400
• Land/ buildings 28000
• Mortgage 5000 23000
• B Ltd 400
• Plant 7000
• Receivables 1000
• Inventory 400
• 44200

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400 Liquidation
• Land/ buildings 28000 expenses
  300
• Mortgage 5000 23000 commission
  2500
• B Ltd 400
• Plant 7000
• Receivables 1000
• Inventory 400
• 44200

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400 Liquidation
• Land/ buildings 28000 expenses
  300
• Mortgage 5000 23000 commission
  2500
• B Ltd 400
  Wages due 1500
• Plant 7000
• Receivables 1000
• Inventory 400
• 44200

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400 Liquidation
• Land/ buildings 28000 expenses
  300
• Mortgage 5000 23000 commission
  2500
• B Ltd 400
  Wages due 1500
• Plant 7000
  Payables 16000
• Receivables 1000
• Inventory 400
• 44200

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400 Liquidation
• Land/ buildings 28000 expenses
  300
• Mortgage 5000 23000 commission
  2500
• B Ltd 400
  Wages due 1500
• Plant 7000
  Payables 16000
• Receivables 1000
  Directors fees 300
• Inventory 400
  
• 44200

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Example 1(b)- LIQUIDATION CASH

• 
  
• Receivers cash 12400 Liquidation
• Land/ buildings 28000 expenses
  300
• Mortgage 5000 23000 commission
  2500
• B Ltd 400
  Wages due 1500
• Plant 7000
  Payables 16000
• Receivables 1000
  Directors fees 300
• Inventory 400
  Shareholders 23600
• 44200
  44200
  

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Example 1(b)- SHAREHOLDERS DISTRIBUTION

• 
  
• Losses ,-
  Balance 100000
• on operations 5400

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Example 1(b)- SHAREHOLDERS DISTRIBUTION

• 
  
• Losses ,-
  Balance 100000
• on operations 5400
• in receivership 12000

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Example 1(b)- SHAREHOLDERS DISTRIBUTION

• 
  
• Losses ,-
  Balance 100000
• on operations 5400
• in receivership 12000
• in liquidation 59000

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Example 1(b)- SHAREHOLDERS DISTRIBUTION

• 
  
• Losses ,-
  Balance 100000
• on operations 5400
• in receivership 12000
• in liquidation 59000
• Liquidation cash 23600
  ______
• 100000
  100000

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DISCONTINUING OPERATIONS A PARTIAL LIQIDATION

• Continuing and discontinuing operations are to be
  kept separate in the financial report.

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DISCONTINUING OPERATIONS A PARTIAL LIQIDATION

• Continuing and discontinuing operations are to be
  kept separate in the financial report.
• Assists the reader in evaluating the entitys
  financial standing

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DISCONTINUING OPERATIONS A PARTIAL LIQIDATION

• Continuing and discontinuing operations are to be
  kept separate in the financial report.
• Assists the reader in evaluating the entitys
  financial standing
• Different reporting rules apply to going concern
  activities compared with those in liquidation

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DISCONTINUING OPERATIONS A PARTIAL LIQIDATION

• Continuing and discontinuing operations are to be
  kept separate in the financial report.
• Assists the reader in evaluating the entitys
  financial standing
• Different reporting rules apply to going concern
  activities compared with those in liquidation
• Discontinuing operations may be impaired

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