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Hbc2204:Bankruptcy Accounts Question Paper
Hbc2204:Bankruptcy Accounts
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2012
QUESTION ONE
(a) Explain the aims and effects of Bankruptcy proceedings in Kenya in accordance with Bankruptcy Act Cap 53. (5Marks) (b) To what extent is a bankrupt relieved by the bankruptcy proceedings in reality. (2Marks) (c) Explain the various options under bankruptcy. (4Marks) (d) How is Bankruptcy proceedings for a sole proprietor different from those of partnerships and corporate firms? (6Marks) (e) Explain the circumstances under which a person is deemed to have committed an act of bankruptcy in Kenya. (8Mark)
QUESTION TWO (a) What are the duties of a trustee? (5Marks) (b) Joseph and Maria are in partnership. They filed petition in bankruptcy on January 1, 2009 when their balance sheet showed the following position:
Balance sheet; Non-current assets: Financed by: Sh Sh Machinery (cost sh. 1,300,000 900,000 Capital: Joseph 620,000 Furniture 125,000 Maria 210,000 Investments 640,000 Sundry Creditors 3,320,000
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Current Assets: Bills Payable 250,000 Stock 710,000 Bank overdraft Debtors (Doubtful Sh. 250,000) 1,475,000 secured by a change Drawings: Joseph 310,000 machinery 1,500,000 Maria 150,000 460,000 5,900,000 Cash in Hand 70,000 Profit and loss a/c 1,520,000 5,900,000
Additional information: 1. The assets are estimated to realize:
Sh. Machinery 600,000 Furniture 100,000 Investments 825,000 Stocks 600,000
2. Creditors included Sh. 60,000 owed to the area municipality being accrued rates and rents for the year 2009 of the total creditors, Sh. 270,000 was not expected to rank.
3. The bank overdraft was further secured by a charge on Maria’s house which was estimated to realize Sh. 400,000. Maria had personal liabilities of Sh. 100,000.
4. Joseph’s private estate would show a deficit of Sh. 205,000 Required: Prepare the statement of affairs and deficiency account of the firm. (10 Marks)
QUESTION THREE (a) Explain three ways in which a company may be liquidated pursuant to Section 212 (1) of the Companies Act. (3Marks) (b) What is the difference between a Balance Sheet and a Statement of Affairs? (2Marks) (c) Describe the duties of a Liquidator and records he is required to keep by the laws. (3Marks)
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QUESTION FOUR Lemewa Ltd, a trading company has experienced severe financial difficulties in recent times and is currently insolvency. A voluntary winding up petition will soon be filed and management is considering either liquidation or reorganization. The Chief Accountant has produced the following Balance Sheet as if the company were a going concern:
Balance Sheet as at 31st March 2009 Sh. 000 Financed by: Sh. 000 Non-current Assets: Ordinary share capital 100,000 Land 100,000 Retained earnings (64,000) Buildings (NBU) 110,000 36,000 Equipment 80,000 Long term Liabilities: Intangible assets 15,000 Notes payable (secured on 305,000 lien on land & Buildings) 200,000 Investment in securities 15,000 Current Assets: Current Liabilities: Stocks 41,000 Creditors 60,000 Debtors 23,000 Accrued expenses 18,000 Prepaid expenses 3,000 Notes payable (secured by 75,000 Cash at Bank 2,000 389,000 389,000
Additional information: 1. The land and buildings are in a prime location and can be sold for 10% more than their book value. Equipment is expected to fetch 60% less than its current Book Value. 2. In case the company in liquidated, administration costs is estimated at Sh. 21.5m. 3. By spending Sh. 5m on marketing, stocks currently held can be sold for Sh. 50m. 4. Accrued expenses include salaries of Sh. 13m. of this figure, one executive is owed a total of Sh. 3m but is the only employee whose amount due is in the excess of statutory limit. Payroll taxes withheld from salaries and wages but not yet remitted to the KRA total Sh. 3m. However, company records currently show only Sh. 1m portion of this liability. 5. Investments will appreciate by Sh. 5m. Dividends of Sh. 500,000 from these investments which are currently due have not been recognized. 6. Interest of Sh. 5m on the long term liabilities has not been accrued for the current financial year. 7. Debtors are estimated to be collectible for Sh. 12m. 8. A refund of Sh. 1m will be received from the various prepaid expenses but the company’s intangible assets have no resale value.
Required: A statement of affairs in accordance with the Co’s Act and deficiency Account. (20Marks)
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