Corporate Liquidation

(Workback Problem)
A Statement of Realization and Liquidation has been prepared for HIJ Co. The details
are given below:

Assets to be Realized 180,000 Liabilities assumed 150,000

Assets Acquired 120,000 Liabilities not liquidated 195,000
Assets Realized 165,000 Supplementary credits 330,000
Liabilities to be 240,000 Supplementary Charges 210,000
Liquidated

In the SORAL, the total of the debit side is lower than the total of the credit side by
P36,000. The ending balance of Capital Stock and Retained Earnings are P300,000 and
(P255,000), respectively.

A = L + SHE / Estate Equity BEGINNING

240,000 (Liabilities) + 9,000 (Estate Equity) = 249,000 Total Assets - 180,000

(Non-Cash Assets) = 69,000 (Cash)

A = L + SHE / Estate Equity END

195,000 (Liabilities) + 45,000 (Estate Equity) = 240,000 Total Assets - 51,000
(Non-Cash Assets Not Realized) = 189,000 (Cash)

NOTE: in SORAL / Periodic Report

Retained Earnings with DEBIT balance is either Deficit or Retained Deficit

SHE with CREDIT balance is also known as Estate Equity

SHE with DEBIT balance is either Estate Deficit or Estate Deficiency

NOTE: in SOFA / Preliminary or Planning Report

Excess of Total Liabilities over Total Assets at estimated realizable

value is also known as Estimated Deficiency

THEREFORE:

ESTATE Deficiency is NOT the same with ESTIMATED Deficiency

Compute for the following:
1. Beginning balance of cash 69,000
2. Estate equity/(deficit) beginning (300,000 - 291,000 ) 9,000
3. Ending balance of cash. (reconciliation from beginning to end) 189,000

Estate Equity, ending balance 45,000 (300,000 - 255,000)

DR
Debit Credit

To be realized Realized
180,000 165,000

Increase in assets Not Realized

120,000 51,000

Liquidated To be liquidated
195,000 240,000

Not liquidated Increase in liabilities

195,000 150,000
Supplementary Charges Supplementary Credit

210,000 330,000

900,000 936,000

36,000 Net Income

(Efficiency/Technique Problem)
KLM Corporation provided the following balances in December 1, 2022:

Cash 22,000 Accounts payable 238,000

Accounts 140,000 Wages payable 100,000
receivable
Inventories 240,000 Tax payable 140,000
Notes receivable 312,000 Note payable 260,000
Equipment 1,024,000 Mortgage payable 700,000
Share capital 480,000
_______ Deficit/(Debit RE) (180,000)

Total 1,738,000 Total 1,738,000

In the Statement of Realization and Liquidation the following data were ascertained
for the month of September:

● From the existing accounts receivable at the beginning of the month, P80,000 was
collected at book value; P40,000 of the remaining balance from the existing
receivable at the beginning of the month will be collected in the following month
and the rest were worthless.
● 75% of the inventories were sold for P260,000. (perpetual system) As a
consequence, the amount will increase the available for settlement to unsecured
claims this period.
● P227,200 of the recorded notes receivable on September 1 were collected at the
same amount and the rest were worthless; the entire accrued interest on the notes
receivable were all collected during the month.
● Equipment was sold for P780,000.
● Administrative expenses of P44,800 were incurred.
● Additional credit sales amounting to P56,000 were made for the remaining
inventories (perpetual system)
● Interests accrued for the month were for as follows: note receivable P11,200, note
payable P26,000 and mortgage payable P84,000.
● The mortgage payable and the related liability were paid.
● Unsecured priority claims were paid including taxes.
● The remaining non-cash assets are to be realized the following month and the
remaining liabilities are to be paid the following month.

1. Compute the profit or (loss) of the trustee in the Statement of Realization

and Liquidation during the period (416,400)
2. Compute the cash balance at December 31, 2022 311,600
 A = L - Estate Deficit or Estate Deficiency
Cash 311,600
AR 96,000

Total Asset = Total Liabilities - Estate Deficit/Estate Deficiency

407,600 = 524,000 (116,400)

(Workback Problem)
KDC Corporation is undergoing liquidation. The trustee of KDC Corp. presented
the following information:

Assets amounting to P1,000,000 are available to unsecured liabilities without priority.

Assets amounting to P880,000 represents assets originally not pledged to any liabilities.
Unpaid liabilities are as follows: administrative expenses: P168,000; taxes: P144,000
and wages: P256,000. Accounts payable and notes payable totaled P1,440,000. No
assets were pledged on the said liabilities. Estimated payment to fully secured creditors
and partially secured creditors amounts to P1,112,000 and P1,152,000 respectively.
The expected recovery percentage is 40%.

Compute the estimated amount of assets pledged to fully secured creditors

1,800,000

Compute the estimated amount to be paid to all creditors

3,408,000

Solution:

Net Free Assets P 1,000,000

Add: With Priority 568,000
Total Free Assets P 1,568,000
Less: Assets Not Pledged (880,000)
Free Portion P 688,000
Add: Payment to Fully Secured 1,112,000
Assets Pledged to Fully P 1,800,000

Estimated Payment to All Creditors

Fully Secured Creditors P1,112,000

Partially Secured Creditors 1,152,000
Unsecured with Priority 568,000
Unsecured without Priority P 576,000 (1,440,000 x 40%)
P3,408,000
Alternative Computation 1:

Assets Pledged to Fully P1,800,000

*Assets Pledged to Partially 728,000
Free Assets (not pledged) 880,000 P3,408,000

Net Free Assets P1,000,000

Divided by Recovery % 40%
Unsecured Liabilities P2,500,000
Less: Without Priority (1,440,000)
Unsecured Portion P1,060,000*

Estimated Payment to Partially Secured P1,152,000

Less: (1,060,000 x 40%) ( 424,000)
*Assets Pledged to Partially 728,000

Alternative Computation 2:

Fully Secured Liabilities P1,112,000

Partially Secured Liabilities 1,788,000
Unsecured with Priority 568,000
Unsecured without Priority 1,440,000
Total Liabilities P4,908,000
Less: Estimated Deficiency (1,500,000)
Total assets at realizable value 3,408,000