59 TUTORIAL QUESTIONS on
acc 416-EXECUTORSHIP, BANKRUPTCY AND LIQUIDATION
(CONTACT PATRIOT FOR SOLUTIONS ON 08038454008)
TOPIC 1: BANKRUPTCY, COVERING BASIC CONCEPTS, CAUSES OF
BANKRUPTCY AND LIQUIDATION PROCEDURES.
- On 31st March 2025, Ajimatanraeje Nigeria Limited decided to go into voluntary liquidation based on a unanimous resolution passed by its members in their last annual meeting.
The following was the company`s trial balance as at that date.
Additional Information:
i. The company`s assets are estimated to produce as follows:
N
Freehold Properties 187,400
Plant and Machinery 138,900
Investments 24,100
Inventory and Work in progress 62,700
Debtors:
Goods 35,000
Doubtful 18,000
Bad 5,400
ii. The doubtful debts are estimated to realise 331/3 kobo in the naira while the call in arrears failed to produce.
iii. The Creditors include preferential claims of N30,000
iv. The estimated costs and expenses of the liquidation are legal N10,000 ; liquidator`s remuneration N5,000 plus 5% of the amount distributed to members.
v. The debenture interest has been paid to date.
vi. The preference share capital plus the arrears of dividend to date of winding up are to be settled at a premium of 3 kobo per share before the ordinary shares.
vi. The bank overdraft has a floating charge on the assets of the company.
Required:
(a) Section 509(1) of CAMA 1990 stated the categories of persons who cannot be appointed Receivers or Managers of a company in liquidation. Give seven examples of persons not qualified to be so appointed.
(b) Prepare the statement of affairs and deficiency account as at 31st March, 2025
2. Alajeju Nigeria Limited went into voluntary liquidation on 30 June 2024. At this date the company’s Statement of Financial Position was as stated below:
Liabilities N’000
10% preference shares of N1 each 36,000
Ordinary shares of N1 each 60,000
5% debenture 18,000
Creditors 30,900
144,900
Assets:
Plant and machinery 60,000
Stock 30,000
Debtors 45,000
Profit or Loss Account 9,000
Cash at bank 900
144,900
Additional information:
i. The debentures were secured by a floating charge on the assets of the company, the interests have been paid to date.
ii. The liquidator sold the Plant and machinery as well as stock for N86,250,000 and realised all the debtors except one of N8,340,000 which proved to be irrecoverable. The admitted claims of all the creditors include N5,000,000 which have preferential claims.
iii. Expenses of the liquidation amounted to N852,000 and the debentures were repayable on 31 December, 2024. The liquidator’s remuneration was agreed at 5% of the amount realised and 3% of the amount distributed.
iv. On the winding up, the preference shares carried the rights to be repaid their capital in priority to the ordinary shares and also to be paid arrears of dividends up to the date of commencement of winding up. The dividend on the preference shares had been paid up to June 2024.
Required:
(a) Prepare the Liquidator’s Final Accounts and show all the notes to the accounts(workings)
(b) Section 509(1) of CAMA 1990 stated the categories of persons who cannot be appointed Receivers or Managers of a company in liquidation. Give six examples of persons not qualified to be so appointed.
3. Odebeodero and Co Limited went into voluntary liquidation on 31st December 2024. The following are extracted from its books on that date:
|
|
|
|
|
|
N |
|
N |
|
|
Capital: |
Building |
1,500,000 |
|
|
500,000 Ordinary Shares of N10 each |
5,000,000 |
Plant and Machinery |
2,100,000 |
|
Debenture (Secured by Floating Charge) |
2,000,000 |
Inventory |
950,000 |
|
Book Debt |
750,000 |
||
|
Bank Overdraft |
300,000 |
Provisions |
(100,000) |
|
Creditors |
400,000 |
Call in Arrears |
1,000,000 |
|
Cash in hand |
100,000 |
||
|
Profit and Loss account |
1,400,000 |
||
|
7,700,000 |
|
7,700,000 |
Plant and Machinery and Building are valued at N1,500,000, and N1,200,000, respectively. On realization, losses of N150,000 are expected on Inventory. Book-Debts will realize N700,000. Calls-in- arrear are expected to realize 90%. Bank Overdraft is secured against Buildings. Preferential Creditors for taxes and wages are N60,000 and Miscellaneous expenses outstanding N20,000.
You are required to prepare a statement of Affairs to be submitted to the meeting of creditors.
4.a. Define bankruptcy and distinguish
it from insolvency.
b. Explain four (4) major causes
of bankruptcy among corporate organizations.
5. Discuss the major procedures involved in corporate liquidation under the bankruptcy process.
6. Explain the differences between voluntary and compulsory liquidation.
7. The following information relates to XYZ Limited, which is declared bankrupt:
|
Particulars |
₦ |
|
Cash in hand |
80,000 |
|
Accounts receivable |
220,000 |
|
Inventory |
300,000 |
|
Plant and equipment (book value) |
500,000 |
|
Land and building |
400,000 |
|
Secured creditors (bank loan secured by land and building) |
350,000 |
|
Preferential creditors (tax and wages) |
120,000 |
|
Unsecured creditors |
600,000 |
|
Liquidation expenses |
50,000 |
|
Realization value: Land & building ₦360,000; Plant ₦300,000; Inventory ₦200,000; Debtors ₦180,000 |
Required:
Prepare a Statement of Affairs
to determine the expected return to unsecured creditors.
8. Identify and explain five (5) roles of a liquidator in the bankruptcy process.
9. A company in liquidation has the following liabilities and asset realizations:
|
Particulars |
₦ |
|
Secured creditors |
500,000 |
|
Preferential creditors |
150,000 |
|
Unsecured creditors |
700,000 |
|
Share capital |
400,000 |
|
Assets realized |
1,000,000 |
|
Liquidation expenses |
50,000 |
Required: Determine how much each class of creditor will receive.
TOPIC 2: DEEDS OF ARRANGEMENT IN RELATION TO SCHEME OF
ARRANGEMENT AND PROPERTY AVAILABLE FOR DISTRIBUTION.
10. a. Define a Deed of Arrangement and explain its main objectives.
b. Identify and explain
three (3) key features of a Deed of Arrangement.
11, Discuss the relationship between a Deed of Arrangement and a Scheme of Arrangement, clearly distinguishing between the two concepts.
12. Explain the procedures involved in executing a Deed of Arrangement.
13. Enumerate and explain the types of property available for distribution under a Deed of Arrangement.
14. State and explain five (5) advantages and five (5) disadvantages of a Deed of Arrangement as an alternative to bankruptcy.
15. Write short notes on the roles of the trustee in a Deed of Arrangement.
16. Discuss the importance of registration in the validity of a Deed of Arrangement.
17. Explain briefly how a Deed of Arrangement differs from bankruptcy proceedings in terms of purpose and legal effect.
TOPIC 3: THE ROLES OF OFFICIAL RECEIVER, TRUSTEE AND CLASSES OF
CREDITORS
18. Explain the role of the Official Receiver in bankruptcy and liquidation proceedings.
19. Discuss the main duties and responsibilities of a Trustee in bankruptcy or liquidation proceedings.
20. Identify and explain the various classes of creditors in bankruptcy and liquidation proceedings.
21. Explain the relationship between the Official Receiver, the Trustee, and the Creditors during bankruptcy proceedings.
22. Discuss the order of priority in the payment of creditors in a bankruptcy or liquidation process.
23. Explain any four ethical responsibilities of a Trustee in the performance of his duties.
TOPIC 4: PROCESS OF LODGING AND PAYMENT OF DEBT IN BANKRUPTCY
AND LIQUIDATION.
24. Explain the meaning of “lodging or proving of debt” in bankruptcy and liquidation, and outline the steps involved in the process.
25. State and explain the order of priority in which debts are paid during bankruptcy or liquidation proceedings.
26. Describe the roles of the official receiver or liquidator in the process of lodging and payment of debts.
27. Explain any four rights of creditors during the process of lodging and payment of debt in bankruptcy and liquidation.
28. A liquidator realizes ₦2,000,000 from the sale of the company’s assets. The following claims are presented:
|
Particulars |
₦ |
|
Liquidator’s remuneration |
100,000 |
|
Legal expenses |
50,000 |
|
Taxes due to FIRS |
150,000 |
|
Employees’ salaries (3 months) |
200,000 |
|
Secured creditor (mortgage on plant) |
500,000 |
|
Unsecured creditors |
1,200,000 |
Required:
Compute how the ₦2,000,000 will be distributed among the creditors.
29. During bankruptcy proceedings, the trustee realizes ₦1,200,000 from the bankrupt’s estate. The following claims were proved:
|
Particulars |
₦ |
|
Trustee’s expenses |
100,000 |
|
Taxes |
80,000 |
|
Rent owed (preferential) |
40,000 |
|
Secured creditor |
300,000 |
|
Unsecured creditors |
900,000 |
Required:
Calculate:
(a) Total amount available for unsecured creditors
(b) The rate of dividend payable to unsecured creditors.
30. Discuss how the process of lodging and payment of debts promotes fairness and transparency in bankruptcy and liquidation proceedings.
TOPIC 5: PREPARATION OF STATEMENTS OF AFFAIRS, DEFICIENCY/SURPLUS
ACCOUNTS AND LIQUIDATORS ACCOUNTS. EXECUTORSHIPS
INCLUDING DESCRIPTION AND BASIC CONCEPTS, WILLS AND
EXECUTOR.
31. Explain the purpose of a Statement of Affairs in bankruptcy or liquidation proceedings.
32. Distinguish between a Statement of Affairs and a Balance Sheet.
33. State the main components of a Deficiency or Surplus Account and explain its purpose.
34. Explain the purpose of the Liquidator’s Account.
35. Define an Executorship and explain the term “Executor.”
36. What is a Will and what are its essential elements?
37. The following information relates to the bankruptcy of Mr. Ade:
|
Particulars |
₦ |
|
Cash |
5,000 |
|
Debtors (expected to realize ₦40,000) |
60,000 |
|
Stock (expected to realize ₦25,000) |
30,000 |
|
Furniture (expected to realize ₦10,000) |
15,000 |
|
Mortgage on property (realizing ₦50,000) |
30,000 |
|
Creditors: Unsecured |
70,000 |
|
Wages owing |
5,000 |
|
Capital |
75,000 |
Prepare:
(i) Statement of Affairs
(ii) Deficiency Account
38. From the following data, prepare a Liquidator’s Final Statement of Account.
|
Particulars |
₦ |
|
Sale of assets |
500,000 |
|
Liquidator’s remuneration |
25,000 |
|
Preferential creditors |
30,000 |
|
Unsecured creditors |
270,000 |
|
Debentures (secured on assets) |
100,000 |
|
Share capital (ordinary) |
200,000 |
39. Explain the main differences between Liquidator’s Accounts and Executor’s Accounts.
TOPIC 6: TRUST COVERING DEFINITION, RELEVANT CONCEPTS, BOARD OF
TRUSTEES AND COMMITTEE OF INSPECTION. ADMINISTRATION OF
INSOLVENT ESTATES, TRUSTS AND ESTATES OF DECEASED PERSON.
40. Define a trust and explain the essential elements required for its validity.
41. Explain the roles and duties of a trustee in the administration of a trust.
42. Describe the composition and functions of a Board of Trustees.
43. Explain the concept of a Committee of Inspection and outline its main functions in insolvency administration.
44, Explain the process of administering an insolvent estate.
45. Discuss the process of administering the estate of a deceased person.
46. Differentiate between Trusts and Estates of Deceased Persons.
47. Highlight the main accounting records maintained in the administration of trusts and estates.
48. State five (5) differences between the Board of Trustees and the Committee of Inspection.
49. Explain how insolvency affects the administration of estates.
TOPIC 7: DEEDS OF ARRANGEMENTS, DISPOSITION OF PROPERTY BY WILLS
AND LETTERS OF ADMINISTRATION; AND PREPARE ACCOUNTS
RELATING TO THE ADMINISTRATION OF INSOLVENT ESTATES AND
TRUSTEESHIP.
50. Explain the meaning and essential features of a Deed of Arrangement. Discuss the advantages and disadvantages of using a Deed of Arrangement in insolvency administration.
51. Differentiate between a Will and Letters of Administration. State the legal conditions for a valid Will.
52. Enumerate and explain the order of priority for the payment of debts in the administration of an insolvent estate.
53. Explain the nature and functions of a trustee in the administration of estates and trusts. State at least five duties of a trustee.
54. Discuss the key components of the accounts to be prepared during the administration of an insolvent estate.
55. Explain the legal and accounting significance of “Probate” and “Letters of Administration” in estate management.
56. Identify and explain the types of Deeds of Arrangement recognized in insolvency administration.
57. State and explain five factors that can render a will invalid.
58. Briefly explain the role and responsibilities of the Executor or Administrator in estate management.
59. Explain why it is important for trustees and administrators of insolvent estates to prepare periodic accounts.
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