Liquidation of Company

When any company is running a business on loss from many days, there is no improvement in his/her financial position then then in such condition company is brought to an end. On the liquidation of the company, the assets and property of the company are sold under supervision of the government. Amount realized by sale of property is made payment to creditors and remaining amount of property is distributed amongst shareholders according to the provision of law. Company is freed from its debts. By the way if company is able to pay its debts within 3 years from the commencement of the winding up then company could be saved from destruction.  By the by liquidation of company may be done in following way:

1. Voluntary winding up,

2. Winding up under supervision of the court,

3. Winding up by court.

Payments are made by the liquidators in the following order:

1. Payment to fully secured creditors,

2. Legal expenses,

3. Remuneration of the liquidator,

a) Remuneration on assets realized

b) Calculation of remuneration on the amount distributed to unsecured creditors

4. Expenses of liquidation or cost of winding up

5. Payment to unsecured creditors including preferential creditors

6. Payment to shareholders

Format of liquidation of company:

Receipts Estimated value Value realized payments Amount
Assets Liquidators remuneration
Cash at bank Fixed……………
Cash in hand % on realized assets…………
Other assets(excepts    fictitious assets) % on distributed amount……….
Amount received from callsLess:  calls in arrear Liquidation cost and expensesPreference dividend

Debentures with interest

Surplus from securities Preferential creditors
Unsecured creditors
Returns to contributories :Preference shares

Equity shares


Some items are included in fictitious assets which are follows:  Preliminary expenses, discount on issue of shares and debentures, commission on issue of shares and debentures, underwriting commission, profit and loss account.

Question:  The following particulars relate to a limited company which has gone in to voluntary liquidation. You are required to prepare the liquidators final account allowing for his remuneration @ 2% on the amount realized and 2% on the Amount distributed to unsecured creditors including preferential creditors:

Preferential creditors   Rs10000

Unsecured creditors rs32000

Debentures rs10000

Following amounts were received on assets :

Land and buildings rs20000

Plant and machinery rs18,650

Fixtures and fittingsrs1000

Liquidation expenses amounted to rs1000.

Solution:                                                    liquidators final statement

Receipts Estimated value Value realized Payments Amount
Land and buildings 20000 Liquidators remuneration
Plant and machinery 18,650 2% on 39650= 793
Furniture’s and fittings 1000 2% on 10000= 20025 0n 18291= 366 1359
Debentures 10000
Preferential creditors 10000
Unsecured creditor [ balancing fig] 18291
39650 39650


Working notes:  Calculation of amount distributed to unsecured creditors:

39650- (793+200+10000+10000)

39650-20993= 18657; 18657x 2/102=366

18657- 366= 18281

That’s it.






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