ABC Co.

Statement of Financial Position

As of December 31, 20x0

ASSETS
Current Assets:
Cash 40,000.00
Accounts Receivable 220,000.00
Note Receivable 100,000.00
Inventory 530,000.00
Prepaid Assets 10,000.00
900,000.00

Noncurrent Assets:
Land 500,000.00
Building, net 2,000,000.00
Equipment, net 300,000.00
2,800,000.00
Total assets 3,700,000.00

LIABILITIES AND EQUITY

Current liabilities:
Accrued Expenses 221,000.00
Current Tax Payable 350,000.00
Accounts Payable 1,000,000.00
1,571,000.00

Noncurrent Liabilities
Note Payable (secured by equipment) 300,000.00
Loan Payable (secured by land and building) 2,000,000.00
2,300,000.00

Capital deficiency:
Share Capital 500,000.00
Retained earnings (deficit) - 671,000.00
- 171,000.00
Total liabilities and equity 3,700,000.00
 Additional Information:
The following were determined before the start of the liquidation process:
a. Only 76% of the accounts receivable is collectible.
b. P10,000 interest is receivable on the note.
c. The inventory has an estimated selling price of P420,000 and estimated costs to sell of P10,0
d. The prepaid assets are non-refundable.
e. The land and building have fair values of P2,000,000 and P800,000, respectively,
but ABC Co. Expects to sell both assets at a package price of P2,600,000.
f. The equipment has an estimated net selling price of P200,000.
g. Administrative expenses of P30,000 are expected to be incurred in the liquidation process.
h. The accrued expenses include accrued salaries of P25,000.
i. P15,000 interest is payable on the loan.
j. All the other liabilities are stated at their expected net settlement amounts.
 STEP 1
Accounts Book Values Ref
Cash 40,000.00
Accounts Receivable 220,000.00 a.
Note Receivable 100,000.00
d costs to sell of P10,0 Interest Receivable - b.
Inventory 530,000.00 c.
pectively, Prepaid Assets 10,000.00 d.
of P2,600,000. Land and building 2,500,000.00 e.
Equipment, net 300,000.00 f.
liquidation process. Total Assets 3,700,000.00

Accrued Expenses 221,000.00 j.

unts. Current Tax Payable 350,000.00 j.
Accounts Payable 1,000,000.00 j.
Note Payable (secured by equipment) 300,000.00 j.
Loan Payable (secured by land and building) 2,000,000.00 j.
Interest Payable - i.
Estimated Admin Expenses - g.
3,871,000.00
Estimated
Capital deficiency: - 171,000.00 Deficiency
(balancing figure)
Total liabilities & equity 3,700,000.00
 STEP 2
Realizable Values ASSETS
40,000.00 Assets pledged to fully secured creditors: Realizable Value
167,200.00 Land & Building 2,600,000.00
100,000.00 Less: Loan Payable 2,000,000.00
10,000.00 Less Interest Payable 15,000.00
410,000.00
- Assets pledged to partially secured creditors:
2,600,000.00 Equipment, net 200,000.00
200,000.00
3,527,200.00 Free Assets
Cash 40,000.00
221,000.00 Accounts Receivable 167,200.00
350,000.00 Note Receivable 100,000.00
1,000,000.00 Interest Receivable 10,000.00
300,000.00 Inventory 410,000.00
2,000,000.00 Prepaid Assets -
15,000.00 Total Free Assets*
30,000.00
3,916,000.00 *by definition, excess of assets pledge to fully secured creditors over the related liabilities are in
- 388,800.00 computation
3,527,200.00
LIABILITIES
Unsecured Liabilities with Priority: Secured and
Priority Claims
Estimated Admin Expenses 30,000.00
Accrued Salaries (ref. h) 25,000.00
Current Tax Payable 350,000.00
Total Unsecured Liability w/ Priority 405,000.00

Fully Secured Creditors:

Loan Payable (secured by land and building) 2,000,000.00
Interest Payable 15,000.00
2,015,000.00

Partially Secured Creditors:

Note Payable (secured by equipment) 300,000.00
Less: Equipment 200,000.00

Unsecured Liabilities Without Priority

Accrued Expenses, Net of Accrued Salaries 196,000.00
Accounts Payable 1,000,000.00
Total Unsecured Liabiities Without Priority
 STEP 3 (OPTIONAL)

Available for Unsecured Creditors

585,000.00
Total Free Assets*
Less: Total Unsecured Liabilities with Priority
- Net Free Assets
Divide by: Total Unsecured Liabilities without Priority

Estimated recovery percentage of unsecured creditors without prior

Estimated Amounts to be Recovered by Each Class of Cr

Total Claims
727,200.00 Unsecured Liabilities with Priority: 405,000.00
1,312,200.00 Fully Secured Creditors: 2,015,000.00
Partially Secured Creditors: 300,000.00
tors over the related liabilities are included in Unsecured Liabilities Without Priority 1,196,000.00
Shareholders None
Total Assets at Realizable Values

Unsecured Liability without Priority

Partially Secured Creditors:
Less: Realizable Value of Collateral Security
Unsecured Portion of Claim
Multiply by: Estimated Recovery Percentage
- Total
Add back: Realizable Value of Collateral Security
Estimated Recovery

STEP 3 (ALTERNATIVE)

- Total Assets at Realizable Values

Less: Unsecured Creditors with Priority
Less: Fully Secured Creditors
Less: Realizable Value of Assets pledged to partially Secured Creditors
100,000.00 Net Free Assets

Unsecured Liabilities Without Priority

Deficiency of Assets Pledged to Partiallly Secured Creditors
1,196,000.00 Total Unsecured Liabilities Without Priority
1,296,000.00
Estimated Recovery Percentage
OPTIONAL) STEP 4
ABC Co.
Statement of Affairs
As of January 1, 20x1

Book Values

1,312,200.00
405,000.00 2,500,000.00
907,200.00
1,296,000.00

creditors without priority 70%

300,000.00
overed by Each Class of Creditors
Estimated
Recovery Percentage Recovery
100% 405,000.00 40,000.00
100% 2,015,000.00 220,000.00
200,000 + (100,000*70%) 270,000.00 100,000.00
70% 837,200.00 -
0% - 530,000.00
3,527,200.00 10,000.00

300,000.00
200,000.00
100,000.00 3,700,000.00
70%
70,000.00
200,000.00
Book Values
270,000.00

LTERNATIVE) -
25,000.00
3,527,200.00 350,000.00
405,000.00
2,015,000.00
ecured Creditors 200,000.00
907,200.00 2,000,000.00
-
1,196,000.00
100,000.00
1,296,000.00 300,000.00
70%

196,000.00
1,000,000.00

- 171,000.00
3,700,000.00
 STEP 4
ABC Co.
Statement of Affairs
As of January 1, 20x1
Available for
ASSETS Realizable Values
Unsecured Creditors
Assets pledged to fully secured creditors:
Land & Building 2,600,000.00
Less: Loan Payable 2,000,000.00
Less Interest Payable 15,000.00 585,000.00

Assets pledged to partially secured creditors:

Equipment, net 200,000.00
Note Payable (secured by equipment) 300,000.00 -

Free Assets
Cash 40,000.00
Accounts Receivable 167,200.00
Note Receivable 100,000.00
Interest Receivable 10,000.00
Inventory 410,000.00
Prepaid Assets - 727,200.00
Total Free Assets* 1,312,200.00
Less: Unsecured Liab. w/ Priority 405,000.00
Net Free Assets 907,200.00
Estimated Deficiency 388,800.00
1,296,000.00

Unsecured Non-
LIABILITIES & EQUITY Realizable Values
Priority Liabilities
Unsecured Liabilities with Priority:
Estimated Admin Expenses 30,000.00
Accrued Salaries (ref. h) 25,000.00
Current Tax Payable 350,000.00
Total 405,000.00

Fully Secured Creditors:

Loan Payable (secured by land and building) 2,000,000.00
Interest Payable 15,000.00

Partially Secured Creditors:

Note Payable (secured by equipment) 300,000.00
 Less: Equipment 200,000.00 100,000.00

Unsecured Liabilities Without Priority

Accrued Expenses, Net of Accrued Salaries 196,000.00
Accounts Payable 1,000,000.00 1,196,000.00
Total Unsecured Liabiities Without Priority 1,296,000.00

SHAREHOLDERS' EQUITY - -
1,296,000.00
 Book Values Additional Information:
Cash 40,000.00 a. P10,000 interest is recei
Accounts Receivable 220,000.00 P15,000 interest is p
Note Receivable 100,000.00 b.
Administrative expenses of
Inventory 530,000.00 be incurred in the li
Prepaid Assets 10,000.00
Land 500,000.00
Building, net 2,000,000.00
Equipment, net 300,000.00
Total Assets 3,700,000.00

Accrued Expenses 221,000.00

Current Tax Payable 350,000.00
Accounts Payable 1,000,000.00
Note Payable (secured by equipment) 300,000.00
Loan Payable (secured by land and building) 2,000,000.00
Total Liabilities 3,871,000.00

Share Capital 500,000.00

Retained earnings (deficit) - 671,000.00
Capital deficiency - 171,000.00

Total Liabilities and Equity 3,700,000.00

l Information: Entry in the book of the receiver
P10,000 interest is receivable on the note and
P15,000 interest is payable on the loan. Jan. 1, 20x1 Cash 40,000.00
Administrative expenses of P30,000 are expected to Accounts Receivable 220,000.00
be incurred in the liquidation process. Note Receivable 100,000.00
Inventory 530,000.00
Prepaid Assets 10,000.00
Land 500,000.00
Building, net 2,000,000.00
Equipment, net 300,000.00
Estate Deficit (squeeze) 171,000.00
Accrued Expenses
Current Tax Payable
Accounts Payable
Note Payable (secured by equipment)
Loan Payable (secured by land and building)

*receivers record the assets & liab at book values

*unrecorded interests are not included and are recorded seperately as "new"

Jan. 1, 20x1 Interest Receivable - new 10,000.00

Estate Deficit
Jan. 1, 20x1 Estate Deficit 15,000.00
Interest Payable - new

*estimated administrative expense are recorded only when actually paid.

*estate deficit for debit balance, estate equity for credit balance
e receiver Transaction Occurred during the Period

a. Only P165,000 were collected on the accounts receivable. The

remainder was written-off.
b. The interest on the note was collected in full, but only 90% was
collected on the principal. The remainder was written-off.
c. Half of the inventory was sold for P300,000. Actual costs to sell were
P5,000.
d. The prepaid assets were written-off.
e. The land and building were sold for P2,600,000.
f. The equipment was sold for P220,000
221,000.00 g. Of the total accrued expenses, only the accrues salaries of P25,0000
350,000.00 were paid. The balance remains outstanding.
1,000,000.00 h. The current tax payable was paid in full.
300,000.00 i. The interest and the principal on th eloan were paid in full.
and and building) 2,000,000.00 j. The note payable was settled for P220,000. The lender canceled the
balance.
k. Administrative expenses of P27,000 were paid.
orded seperately as "new"

10,000.00

15,000.00

ly when actually paid.

redit balance
 Entries in the book of the receiver Amounts to be Presented on State

a. Cash 165,000.00 1
Estate Deficit 55,000.00
Accounts Receivable 220,000.00
b. Cash 100,000.00
Estate Deficit 10,000.00
Note Receivable 100,000.00 2
Interest Receivable a. 10,000.00
c. Cash 295,000.00
Inventory 265,000.00 3
Estate Deficit 30,000.00
d. Estate Deficit 10,000.00 a.
Prepaid Assets 10,000.00 b.
e. Cash 2,600,000.00 c.
Land 500,000.00 e.
Building, net 2,000,000.00 f.
Estate Deficit 100,000.00
f. Cash 220,000.00
Estate Deficit 80,000.00 4
Equipment, net 300,000.00
g. Accrued Expenses 221,000.00
Cash 221,000.00 5
h. Current Tax Payable 350,000.00
Cash 350,000.00
i. Interest Payable a. 15,000.00 6
Loan Payable (secured by land and b 2,000,000.00
Cash 2,015,000.00
j. Note Payable (secured by equipmen 300,000.00 7
Cash 220,000.00
Estate Deficit 80,000.00 g.
k. Estate Deficit 27,000.00 h.
Cash 27,000.00 i.
j.

8
 9

10
 Amounts to be Presented on Statement Net Gain (Loss)

Assets to be realized
Total Assets 3,700,000.00 Assets to be realized
Less: Cash 40,000.00 Assets acquired
3,660,000.00 Liabilities liquidated
Liabilities not liquidated
Assets acquired Supplementary expenses
Unrecorded AR 10,000.00 Totals
Net Gain
Assets realized
Actual Net Proceeds:
Collection of Accounts Receivable 165,000.00
Collection of Interest and Note 100,000.00
Sale of Inventory 295,000.00
Sale of Land and Building 2,600,000.00
Sale of Equipment 220,000.00
Assets Realized 3,380,000.00

Assets not realized

Unsold Inventory Book Value 265,000.00

Liabilities to be liquidated
Liabilities Book Value 3,871,000.00

Liabilities assumed
Unrecorded Interest Payable 15,000.00

Liabilities liquidated
Actual Liability Payments:
Payment for Accrued Salaries 25,000.00
Payment for Current Tax Payable 350,000.00
Payment for Interest and Loan 2,015,000.00
Payment for Note Payable 220,000.00
Liabilities Liquidated 2,610,000.00

Liabilities not liquidated

Unpaid Liabilities Book Value
Accrued Expenses (less Ac. Salar) 196,000.00
Accounts Payable 1,000,000.00
1,196,000.00
Supplementary expenses
Administrative Expenses Paid 27,000.00

Supplementary income
None -
Net Gain (Loss) ABC Co. in Rec
Statement of Realizati
Dr Cr For the six months en
3,660,000.00 3,380,000.00 Assets realized
10,000.00 265,000.00 Assets not realized ASSETS
2,610,000.00 3,871,000.00 Liabilities to be liquidated Assets to be realized
1,196,000.00 15,000.00 Liabilities assumed Accounts Receivable
27,000.00 - Supplementary income Note Receivable
7,503,000.00 7,531,000.00 Totals Inventory
28,000.00 Prepaid Assets
Land and Building
Equipment, net
Total

Assets acquired
Interest Receivable

LIABILITIES
Liabilities liquidated
Accrued Expenses
Current Tax Payable
Interest Payable
Loan Payable (secured by land and b
Note Payable (secured by equipmen
Total

Liabilities not liquidated

Accrued Expenses (less Ac. Salar)
Accounts Payable
Total

SUPPLEMENTARY ITEMS
Supplementary expenses
Administrative Expenses Paid
Net Gain
 ABC Co. in Receivership Aditional Analy
Statement of Realization and Liquidation
For the six months ended June 30, 20x1 Breakdown of Net Ga

Assets realized Assets to be realized

220,000.00 Accounts Receivable 165,000.00 Assets acquired
100,000.00 Note Receivable 90,000.00 Totals
530,000.00 Interest Receivable 10,000.00
10,000.00 Inventory 295,000.00
2,500,000.00 Land and Building 2,600,000.00
300,000.00 Equipment 220,000.00 Liabilities liquidated
3,660,000.00 Total 3,380,000.00 Liabilities not liquidated
Totals
Assets not realized Net Gain on Settlement
10,000.00 Inventory 265,000.00

Supplementary expenses
Liabilities to be liquidated
25,000.00 Accrued Expenses 221,000.00
350,000.00 Current Tax Payable 350,000.00
15,000.00 Accounts Payable 1,000,000.00 Net Loss on Sale of Assets
2,000,000.00 Note Payable (secured 300,000.00 Net Gain on Settlement of Liabilities
220,000.00 Loan Payable (secured by 2,000,000.00 Net Expenses
2,610,000.00 Total 3,871,000.00 Net Gain During the Period

Liabilities assumed
196,000.00 Interest Payable 15,000.00
1,000,000.00 Breakdown of Net
1,196,000.00

ASSETS
Supplementary income Cash
27,000.00 - Accounts Receivable
28,000.00 Note Receivable
7,531,000.00 7,531,000.00 Interest Receivable
Inventory - Sold
Inventory - Unsold
Prepaid Assets
Land and Building
Equipment, Net
Total

LIABILITIES
Accrued Expenses - Settled
Accrued Expenses - Unsettled
Current Tax Payable
Accounts Payable
Note Payable
Loan Payable
Interest Payable
Total

SUPPLEMENTARY ITEMS
Administrative Expenses

Net Gain During the Period

 Aditional Analyses and Reconciliations Other Items:

Breakdown of Net Gain Using Separate T-Accounts Ending C

Dr Cr
3,660,000.00 3,380,000.00 Assets realized Beg. Cash
10,000.00 265,000.00 Assets not realized Assets Realized
3,670,000.00 3,645,000.00 Totals
25,000.00 Net Loss on Sale Totals

Dr Cr
2,610,000.00 3,871,000.00 Liabilities to be liquidated Ending Balance of
1,196,000.00 15,000.00 Liabilities assumed
3,806,000.00 3,886,000.00 Totals
80,000.00 1/1 Opening Balance
1/1 New Liability
Dr Cr a.
27,000.00 - Supplementary income b.
27,000.00 Loss-Net Expenses d.
f.
k.
- 25,000.00
of Liabilities 80,000.00
- 27,000.00
28,000.00
Reconciliation of Cas
ASSETS =

Breakdown of Net Gain on per Account Basis:

Net Proceeds/ Cash
Book Values Gain (Loss)
Payments Assets Not Realized
Total
40,000.00 - -
220,000.00 165,000.00 - 55,000.00
100,000.00 90,000.00 - 10,000.00
10,000.00 10,000.00 -
265,000.00 295,000.00 30,000.00
265,000.00 - -
10,000.00 - - 10,000.00
2,500,000.00 2,600,000.00 100,000.00
300,000.00 220,000.00 - 80,000.00
3,710,000.00 3,380,000.00 - 25,000.00

25,000.00 - 25,000.00 -
196,000.00 - -
350,000.00 - 350,000.00 -
1,000,000.00 - -
300,000.00 - 220,000.00 80,000.00
2,000,000.00 - 2,000,000.00 -
15,000.00 - 15,000.00 -
3,886,000.00 - 2,610,000.00 80,000.00

- - 27,000.00 - 27,000.00

28,000.00
 Ending Cash Balance

Cash
40,000.00
3,380,000.00 2,610,000.00 Liabilities liquidated
27,000.00 Administrative Expenses
3,420,000.00 2,637,000.00 Totals
783,000.00

Ending Balance of Estate Equity (Deficit)

Estate Deficit
171,000.00
15,000.00 10,000.00 1/1 New Asset
55,000.00
10,000.00 30,000.00 c.
10,000.00 100,000.00 e.
80,000.00 80,000.00 j.
27,000.00
368,000.00 220,000.00
148,000.00 End. -deficit (debit balance

Reconciliation of Cash Using Basic Equation

ASSETS = LIABILITY + EQUITY

783,000.00 Liabilities Not Liquidated 1,196,000.00

265,000.00 Estate Deficit - 148,000.00
1,048,000.00 Total 1,048,000.00
 Illustration 1: Recovery of Claims by Order of Priority
ABC Co. is undergoing
ABC Co's statement of affairs indicates that unsecured creditors without priority with total below:
claims of P180,000 can expect to recover P72,000 if all the assets were sold. Among the
creditors of ABC Co are the following.

a. Government taxes payable of P100,000, inclusive of P20,000 assessments and

surcharges
b.
XYZ bank loan payable of P1,000.000 and accrued interest of 50,000 backed by
collateral security with realizable value of P1,200,000

c. Alpha Financing Co: loan payable of P800,000 backed by collateral security with
realizable value of P500,000
d. Mr. Bombay: loan payable of P250,000 and accrued interest of P50,000. No
collateral security.

Requirement: How much is the expected recovery of each of the creditors listed above? Requirements:
a.
Recovery
Claim
Percentage Estimated Recovery b.
a. Government - unsecured liability 100,000.00 100% 100,000.00
with priority c.
b. XYZ Bank - Fully Secured 1,050,000.00 100% 1,050,000.00 d.
c. Alpha Financing Co. - partially 800,000.00 40% 620,000.00
secured creditor
d. Mr. Bombay - Unsecured Liability Solutions:
300,000.00 40% 120,000.00
Wihtout Priority a.

Total Claims 180,000.00 Total Assets at realizab

Expected Recovery 72,000.00 Less:
40%

Net Free Assets

b.

Unsecured Creditors w
Deficiency of assets ple
Total Unsecured Liabil

Net Free Assets

Total Unsecured Liabil
Estimated Recovery Pe

c.

Net Free Assets

Less:
Estimated deficiency

Total Assets at realizab

Less:
Estimated deficiency

Total Unsecured Liabil

Multiply:
Estimated deficiency

d.
 Illustration 2: Recovery of Claims Illustration 3: Recovery
ABC Co. is undergoing liquidation. Informaion on ABC Co.'s assets and liabilities is shown Information on ABC Co.'s liquidation is a
below: Gains on realization of assets
Losses on realization of assets
Additional Assets Realized during liqu
Additional liabilities settled during liq
Share capital (at original book value)
Retained earnings- (deficit) (at origina

Requirement:
Compute for the recovery percentage of
of shareholder's equity.

Solution: A=L+E
E= 400,000.00
A-L = 400,000.00
Requirements:
If the assets are sold at realizable values, how much cash is available to pay The recovery percentage of shareholder
unsecured creditors without priority? Assets - Liabilities at book value
What is the estimated recovery percentage of unsecured creditors without Gains on realization of assets
priority? Losses on realization of assets
How much is the total estimated deficiency to unsecured creditors? Additional Assets Realized during liqu
How much can each class of creditors expect to recover from their respective Additional liabilities settled during liq
claims? Net assets available to shareholders
Divide by: Book Value of shareholders
Recovery Percentage of Shareholder
Cash available to unsecured creditors without priority

Total Assets at realizable Values 250,000.00

Unsecured Creditors with Priority 20,000.00
Fully Secured Creditors 120,000.00
Realizable value of assets pledged to partially
secured creditors #REF!
Net Free Assets #REF!

Estimated recovery percentage

Unsecured Creditors without priority 140,000.00

Deficiency of assets pledged to partially secured creditors #REF!
Total Unsecured Liabilities without Priority #REF!

Net Free Assets #REF!

Total Unsecured Liabilities without Priority #REF!
Estimated Recovery Percentage #REF!

Estimated deficiency to unsecured creditors

Net Free Assets #REF!

Total Unsecured Liabilities without Priority #REF!
Estimated deficiency #REF!

Total Assets at realizable Values 250,000.00

Total Liabilities at realizable values 320,000.00
Estimated deficiency - 70,000.00

Total Unsecured Liabilities without Priority #REF!

(80% recovery - 100% claim) #REF!
Estimated deficiency #REF!

Recovery by each class of creditor

Recovery Estimated
Claim
Percentage Recovery

20,000.00 100% 20,000.00

Unsecured liability with priority
Fully Secured creditor 120,000.00 100% 120,000.00
Partially secured creditor 40,000.00 #REF! #REF!
Unsecured Liability Without 140,000.00 #REF! #REF!
Priority
Total #REF!
 Illustration 3: Recovery percentage of Shareholders Illustration 4: Recovery of Shareholders' C
n ABC Co.'s liquidation is as follows: ABC Co. owns 80% of XYZ, Inc., a liquidating entity. ABC has
receivable of P1,000,000 from XYZ, and an investment (in s
alization of assets 180,000.00 P5,000,000. XYZ's statement of affairs shows 100% recover
ealization of assets 320,000.00 and 20% recovery for inside creditors.
Assets Realized during liquidation 50,000.00
iabilities settled during liquidation 30,000.00
al (at original book value) 700,000.00 Requirements:
arnings- (deficit) (at original book value) 300,000.00 a. How much can ABC expect to recover from its re
b. How much can ABC expect to recover from its in

he recovery percentage of the shareholders based on the book value Solutions:

r's equity. a. Inter-company Receivable
Unsecured receivable
to A-L=E Multiply: Recovery for Inside

b. Investment in Subsidiary
percentage of shareholders is computed as follows: None because 'inside' liabilities are not paid
bilities at book value 400,000.00 owners' equity claims are unpaid.
alization of assets 180,000.00
ealization of assets 320,000.00
Assets Realized during liquidation 50,000.00
iabilities settled during liquidation 30,000.00
available to shareholders 280,000.00
Book Value of shareholders' equity 400,000.00
ercentage of Shareholders 70%
 Recovery of Shareholders' Claim
a liquidating entity. ABC has an unsecured
XYZ, and an investment (in subsidiary) of
affairs shows 100% recovery for outside creditors
ditors.
expect to recover from its receivable?
expect to recover from its investment?
1,000,000.00
20%
200,000.00
nside' liabilities are not paid in full therefore
quity claims are unpaid.
Illustration 5: Errors
ABC Co. has voluntarily field a petition for bankcruptcy. ABC's inexperienced acc
determined that the expected recovery percentage of unsecured creditors with
20%. The unsecured creditors have refuted this and demanded an audit of the a
computations. The following information was determined from the accountant'
papers:
Assets and liabilities before the start of liquidation process:
Total assets (book value)
Unsecured creditors with priority
Fully secured creditors
Partially secured creditors
Unsecured creditors without priority
During the period, assets with total book value of P1,000,000 were sold for P94
portion of the proceeds were used to settle 'fully secured liabilities' of P540,000
secured liabilities' of P370,000.
The remaining unsold assets have the following realizable values:
Assets pledged to fully secured creditors
Assets pledged to partially secured creditors
All other assets
Further investigations revealed the following:
a. Estimated liquidation expenses amounting to P40,000 were not yet r
b. Additional unsecured liability without wriority of P50,000 should be a
Requirement:
Compute for the correct estimated recovery percentage of unsecured creditors
priority.
Solution:
ERROR:
The liabilities described in the accountant's working paper as fully se
actually only "partially" secured (also, the related assets are pledged
secured creditors, not to fully secured creditors) as shown in the com
below:
Liabilities
"Fully" Secured 360,000.00
Partially Secured 150,000.00
Total deficiency of pledged assets
Net Free Asset is computed as:
Amount realized from sale of assets
Amount paid out of the proceeds
Realizable Value of remaining assets
Total assets at realizable values
Less: Partially secured creditors:
Erroneous "Fully" secured creditors
Realizable value of collateral to partially secured credi
Total free assets
Less: Unsecured creditors with priority
Net Free Assets

Total Unsecured Liabilities without Priority

Unsecured creditors without priority
Total deficiency of pledged assets
Total Unsecured Liabilities without Priority

Estimated recovery percentage of unsecured creditors without priority

Net Free Assets

Total Unsecured Liabilities without Priority
Estimated Recovery Percentage

Alternative Solution:

Proceeds from sale of some assets

Assets pledged to fully secured creditors
Assets pledged to partially secured creditors
All other assets
Total assets at realizable value (before payment of
liabilities)
Unsecured Creditors with priority
Fully secured creditors (before partial payment)
Partially secured creditors (before partial payment)
Unsecured Creditors without priority
Additional Liabilities
Total Liabilities
Deficiency to unsecured creditors w/o priority

Deficiency to unsecured creditors w/o priority

Divide by: Total Unsecured Liabilities without Priority
Non-Recoverable portion of unsecured liability without Priority

Estimated Recovery Percentage

on 5: Errors Illustration 6: Receivership - Journal Entry
ABC Co.'s liquidation is entrusted to a receiver. Relevant information follows:

kcruptcy. ABC's inexperienced accountant Book Value

ntage of unsecured creditors without priority is
s and demanded an audit of the accountant's
determined from the accountant's working ASSETS 300,000.00
LIABILITIES
Unsecured liabilities with priority 20,000.00
tion process: Fully Secured creditors 120,000.00
2,000,000.00 Partially Secured Creditors 40,000.00
260,000.00 Unsecured creditors without priority 140,000.00
900,000.00 320,000.00
520,000.00
440,000.00 UNRECORDED ITEMS:
Dividend Receivable
Interest Payable
of P1,000,000 were sold for P940,000. A
lly secured liabilities' of P540,000 and 'partially Estimated Administrative Expenses

g realizable values: Requirements:

320,000.00 a. How much is the estatte equity (deficit) in the opening journal entry in
140,000.00 the receiver's books?
515,000.00 b. How much is the estimated deficiency to unsecured creditors without
priority in the statement of affairs?

unting to P40,000 were not yet recorded. Solution:

ut wriority of P50,000 should be accrued. a. Estate equity (deficit) in opening journal entry

Date Various Assets (at book value) 300,000.00

ercentage of unsecured creditors without Estate Deficit 20,000.00
Various Liabilities (at book value)

b. Estimated deficiency to unsecured creditors without priority

untant's working paper as fully secured are Total assets at Realizable Value
so, the related assets are pledged to partially
ed creditors) as shown in the computations Total liabilities at Realizable Value
Estimated deficiency to unsecured creditors without priority

Realizable Value
of Assets Unsecured Portion

320,000.00 40,000.00
140,000.00 10,000.00
50,000.00
 940,000.00
910,000.00
975,000.00
1,005,000.00

320,000.00
140,000.00 460,000.00
545,000.00
300,000.00
245,000.00

490,000.00
50,000.00
540,000.00

creditors without priority

245,000.00
540,000.00
45%

940,000.00
320,000.00
140,000.00
515,000.00
1,915,000.00

260,000.00
900,000.00
520,000.00
440,000.00
 90,000.00
2,210,000.00
- 295,000.00

- 295,000.00
540,000.00
ility without Priority -54.63%

100%
-54.63%
d Recovery Percentage 45.37%
al Entry Illustration 7: Statement of Realization and Liquidation
rmation follows: ABC Co.'s statement of realization and liquidation shows the following:

ASSETS
Realizable Value
Assets to be realized 2,000,000.00
250,000.00 Assets acquired 15,000.00
Assets realized 1,180,000.00
20,000.00 Assets not realized 220,000.00
120,000.00
40,000.00 LIABILITIES
140,000.00 Liabilities liquidated 2,130,000.00
320,000.00 Liabilities not liquidated 1,190,000.00
Liabilities to be liquidated 2,870,000.00
Liabilities assumed 32,000.00
5,000.00
2,000.00 SUPPLEMENTARY ITEMS
10,000.00 Supplementary expenses 25,000.00
Supplementary income 18,000.00

he opening journal entry in Requirements:

a. How much is the net gain (loss) for the period?
secured creditors without b. If the estate deficit at the end of the period is P870,000, how much is the end

Solutions:
a. Dr Cr
Assets to be realized 2,000,000.00 1,180,000.00
Assets acquired 15,000.00 220,000.00
Liabilities liquidated 2,130,000.00 2,870,000.00
Liabilities not liquidated 1,190,000.00 32,000.00
320,000.00 Supplementary expenses 25,000.00 18,000.00
Totals 5,360,000.00 4,320,000.00
without priority 1,040,000.00

255,000.00 b.
332,000.00 Reconciliation of Cash Using Basic Equation
- 77,000.00
ASSETS = LIABILITY + EQUITY

Cash 100,000.00 Liabilities Not Liquidated

Assets Not Realized 220,000.00 Estate Deficit
Total 320,000.00 Total
 ealization and Liquidation
wing:

riod?
d is P870,000, how much is the ending balance of cash?

Assets realized
Assets not realized
Liabilities to be liquidated
Liabilities assumed
Supplementary income
Totals
Net Loss

Equation

IABILITY + EQUITY

1,190,000.00
- 870,000.00
320,000.00