QUESTION ONE

(a) (i). Distinguish between list A and list B contributories in the case of company
liquidation. (2 marks)
(ii). Under what conditions would a list B contributory be required to contribute in the case of
company liquidation? (3 marks)

(b) Korir carrying out a business as a trader in Nairobi finds himself insolvent and on 15 March 2021
files his own petition in bankruptcy. The following balances are extracted from the books of his
business on that date:

Shs. Shs.
Capital 180,000 Shop, land and 600,000
Mortgage on shop –land and 450,000 buildings 150,000
building 180,000 Furniture and fittings 81,405
Loan ICDC 90,000 Stock of goods 96,195
Loan – Barclays Bank 30,000 Debtors 197,100
Loan – Co-operative Society 15,000 Korir – drawings 300
Loan – A Kariuki 3,000 Cash in hand
Loan – W. Kuria 171,000
Trade creditors 2,700
Salaries, wages payable 540
NHIF, NSSF, PAYE 2,7600 _______
Bank overdraft 1,125,000 1,125,00
0

The following additional information is available:

1. Trade creditors include Sh.4,500 owing to Nairobi City council in respect of rates for the current
period and a small loan from his friend Macharia Sh.1,500.
2. The amount owing for salaries, wages and payroll deductions are for 2021
3. There is Sh.31,500 interest unpaid on the mortgage as at 15 March 2021 which has not been recorded
in books.
4. The loan from ICDC is secured by a second mortgage on the shop, land and building. The unrecorded
interest owing as at 15 March 2001 is Sh.14,400.
5. The loan from the Co-operative society was obtained when Korir pledged his wholly owed farm as
security. The farm is valued at Sh.45,000. There is no interest outstanding on his loan.
6. The interest on the loan from A Kariuki was to vary with profits, but since the business has been
operating at loss, there is no interest due.
7. There is no interest outstanding on the loan from Barclays Bank.
8. W. Kuria is Korir’s brother-in-law.
9. The value assets are estimated to be:

Shs.
Shop, land and building 630,000
Furniture and fittings 120,000
Stock of goods 30,000

10. Of the debtors, Sh.60,000 are thought to be good and Sh.30,000 doubtful of which Sh.22,500 should
be collectable.
11. Korir’s uncle died recently and he will be receiving Sh.7,500 as an inheritance.
12. Korir has no personal creditors outside the business but he has other personal assets as well as the
small piece of land amounting to Sh.9,000 exclusive of household and personal effects.

Required:
(a) A statement of affairs for Korir as at 15 March 2021 in good form (10 marks)
(b) A deficiency account. (8 marks)
(c) A detailed listing of the amounts you have included as unsecured preferential creditors(2 marks)
(Total: 20 marks)
QUESTION TWO
A creditor of Polepay Traders, a partnership owned by Peter Ole Lemsio and Patrick Ayimba, presented a
petition in bankruptcy against the partnership on 1 April 2001. On 30 April 2021, the High Court made
out a Receiving order against the partnership and the two partners.

The balance sheets of the partnership and the individual partners as at 30 April were as follows:

Polepay Lemasio Ayimba Polepay Lemasio Ayimba

Assets: Sh. Sh. ‘000’ Sh. Liabilities: Sh. Sh. ‘000’ Sh.
‘000’ ‘000’ ‘000’ ‘000’
Land and 12,450 Bank 4,600
building overdraft
Houses 5,500 4,800 Creditors 27,270 670 450
Plant & 14,600 Long-term 11,200 3,300 3,840
Equipment loans
Furniture, etc, 650 400 Car loans 380 600
Inventory 19,600 Excess of
assets
Trade 20,240 Over 24,000 15,990 15,550
receivables liabilities
Cash 180 90 140
Investments 13,600 14,200
Motor cars ______ 500 900 _______ ______ ______
67,070 20,340 20440 67,070 20,340 20,440

Additional information:
1. Lemasio and Ayimba have contributed equal amounts of capital to the partnership; always draw the
same amount from the partnership and share profits and losses equally. The partners’ capital included
in their personal assets under the title investments,

The estimated realizable values of the assets stated above are as follows:

Polepay Lemasio Ayimba

Assets: Sh. ‘000’ Sh. ‘000’ Sh. ‘000’
Land and building 8,000
Houses 4,000 3,500
Plant and Equipment 7,500
Furniture 180 100
Inventory 13,500
Trade receivables 13,100
Other investments 700 1,000
Motor cars 250 300
2. The long term loan in the books of the partnership is secured on the partnership land and buildings.
The long-term loan to the individual partners are secured on the individual partner’s houses. The
partnership overdraft was secured by a second mortgage on the partnership land and building and by
the personal guarantee of Ayimba and the deposit of his investments. The car loans are secured on the
partners’ car individually.

3. Of the sectors of Polepay, Lemasio and Ayimba, preferential creditors amounted to Sh.20,000,
Sh.590,000 and Sh.380,000, respectively, and represent amounts due for taxation.

Required:
Prepare statements of Affairs and Deficiency or surplus Accounts for the partnership and for the
individual partners, using the format laid down in the Bankruptcy Act and showing the legal position.
(Total: 20 marks)

QUESTION THREE
(a) List and explain briefly the powers of liquidator (5 marks)
(b) Hasara Ltd makes its accounts each year 31 October and has been trading at a loss. On 31 October
2002, a resolution for a voluntary liquidation was passed. The balance sheet as at that date was as
follows.

Sh. ‘000’ Sh. ‘000’ Sh.

‘000’
Non Current assets
Freehold property 11,000
Plant and machinery 2,750
13,750
Current assets:
Stock 8,750
Debtors 13,375
Cash 125
22,250
Current liabilities:
3,750
11,250
Bank overdraft 500 (15,500) 6,750
Creditors 20,500
Interest payable (5% debentures)

Paid up capital:
10,000 10% cumulative preference shares of Sh.500 each fully 5,000
paid 12,500
25,000 Ordinary shares of Sh.500 each fully paid 2,500
10,000 Ordinary shares of Sh.500 each. Sh.250 paid. 20,000
Revenue reserves: profit and loss account (9,500)
Non Current liabilities: 10,000
5% debentures 20,500

Additional information:
1. The debentures are secured by a floating charge on the asset and undertaking of the company.
2. The bank overdraft is secured by a fixed charge on the company’s freehold property.
3. The preference shares carry a right to a fixed cumulative dividend of 10% per annum up to the
date of liquidation and a repayment of Sh.500 per share in priority to all other classes of shares.
No dividend has been paid on the preference shares for two years.
4. The creditors include:
Sh. ‘000’

Directors fees for one year 1,000

Rates for six months to 31 October 2002 125
Manager’s salary for October 2002
Wages for 15 employees 80
Pay As You Earn (PAYE) 50
325

5. The assets realized the following amounts:

Freehold property 12,500
Plant and machinery 2,000
Stock 6,250
Debtors 12,250

6. The expenses of liquidation amount to Sh.125,000 and the liquidator’s remuneration was fixed at
Sh.500,000.

Required:
The liquidator’s statement of account showing in order of priority, the payments made and the
computation of any calls to be made. (15 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Explain the following terms as used in bankruptcy acts:

(i) Voluntary transfers (2 marks)

(ii) Doctrine of reputed ownership (3 marks)

QUESTION FIVE
A compulsory winding up order was made on 30 November 2003 against Hasara Ltd. A summary of the
company’s balance sheet as at that date was as follows:
Non-current assets: Sh. “000” Sh. “000” Sh. “000”
Goodwill
Freehold property 2,689
Plant and machinery 4,940
Shares in subsidiaries 14,620
22,249
Current assets:
Stocks 19,180
Debtors 9,040
Cash in hand 20
28,240
Current liabilities:
Bank overdraft 22,790
Creditors 20,900
Customs and excise tax 200
Accruals 399
Debenture interest due 100 (44,389) (16,149)
6,100

Financed by:
Share capital 5,000,000 ordinary
shares of Sh.20 each – fully paid
10,000
400,000 ordinary shares of Sh.20
each- Sh.12.50 paid 5,000
15,000
Revenue reserves:
Retained profits (losses) (12,900 )
Shareholders’ funds 2,100

Non-current liability:
10% debentures 4,000
6,100
Additional information:
1. The 10% debentures are secured by a first charge on freehold property and the bank overdraft is
secured by a floating charge on the assets.
2. The accruals consisted of:
Sh. “000”
Directors fee, 6 months to 30 November 2003. 75
Managers salary, 2 months to 30 November 2003 80
Wages of 3 workmen, 4 weeks to 30 November 2003 18
Rates – half year to 30 November 2003 20
Taxes for the year to 30 November 2001 120
Miscellaneous expenses 86
399

3. A holder of 20,000 of the partly paid shares was bankrupt and it was anticipated that his trustees
would be in a position to pay a dividend of 25% to his unsecured creditors.
4. The company’s assets were estimated to be realized as follows:

Sh. “000”
Freehold property 4,480
Plant and 14,000
machinery
Stocks 18,760

5. The debtors were considered to be good except as to Sh. 520,000 of which Sh. 400,000 were
doubtful and were expected to realize Sh.110,000. The remaining Sh.120,000 were considered
bad. Goodwill was regarded as valueless.
6. Legal proceedings for breach of contract were pending against the company as at 30 November
2003. The company was considered to have a poor defence and attempts were being made to
settle the claim out of court for Sh.100,000 plus costs estimated at Sh.80,000. No provision for
this claim is included in the balance sheet.
7. The company had incurred losses of Sh.3,040,000, Sh.3,840,000 and 6,020,000 respectively in
each of the three years ended 30 November 2003. The aggregate of the sums charged to the profit
and loss accounts during the three years in respect of depreciation, debenture interest and
directors’ remuneration were Sh.2,380,000, Sh.600,000 and Sh.1,800,000 respectively.

Required:
(a) Statement of affairs as at 30 November 2003. (10 marks)
(b) Deficiency account as at 30 November 2003. (10 marks)
(Total: 20 marks)

QUESTION SIX
Matatizo Ltd. went into voluntary liquidation on 30 November 2003. Its balance sheet as at that date was
as follows:
Sh.
Assets:
Land and building 5,000,000
Plant and machinery 12,500,000
Patents 2,000,000
Stock 2,750,000
Sundry debtors 5,500,000
Cash at bank 1,500,000
Profit and loss account balance 5,625,000
34,875,000

Equity and liabilities:

Issued and subscribed capital
100,000 10% cumulative preference shares of Sh.100 each, fully paid 10,000,000
50,000 equity shares of Sh.100 each, Sh. 75 paid 3,750,000
150,000 equity shares of Sh.100 each, Sh. 60 paid 9,000,000
15% debentures secured by floating charge 5,000,000
Interest outstanding on debentures 750,000
Creditors 6,375,000
34,875,000
Additional information:
1. Preference dividends were in arrears for two years and the creditors included preferential creditors
of Sh.760,000.
2. The assets were realized as follows:

Sh.
3. Land and building 6,000,000
Plant and
Liquidation machinery
expenses amounted to Sh.545,000. The liquidator is entitled to a 10,000,000
commission of 3% on
Patents 1,500,000 assets
Stock 3,000,000 realized
Sundry debtors 4,000,000 except
cash
4. The final payments (including those relating to debentures) were made on 31 May 2004.

Required:
The liquidator’s final statement of account as at 31 May 1994. (Total: 15 marks)

QUESTION SEVEN
Hamed and Hassan were in partnership trading under the name ‘Medsan Traders’ and sharing profits and
losses in the ratio of 1:3 respectively. On 31 December 2004, a winding up petition was lodged against
the firm on which date the balances extracted from the books of the firm and the partners’ separate estates
were as follows:

Current Estimated
value value
Sh. ‘000’ Sh. ‘000’
Assets
Freehold property: Medsan Traders 11,000 12,000
Hamed 7,000 10,000
Plant and machinery: Medsan Traders 3,000 1,500
Furniture and fixtures: Medsan Traders 1,000 800
Hamed 1,500 1,200
Hassan 1,800 1,500
Inventory Medsan Traders 8,000 6,500
Accounts receivable: Medsan Traders 12,000 See (note 1)
Investments: Hamed 1.500 2,400
Hassan 2,000 1,900
Liabilities
Mortgage on freehold property: Medsan Traders 6,000
Hamed 5,000
Bank overdraft: Medsan Traders 7,000
Accounts payables: Medsan Traders 19,000
Hamed 700
Hassan 2,400

Additional Information:
1. Of the accounts receivable. Sh.9 million is estimated to be good while Sh.1 million is estimated to be
bad. 50% of the remaining debts are expected to be paid.
2. The preferential accounts payables for Medsan Traders, Hamed and Hassan were Sh.1,100,000.
Sh.300,000 and Sh.500,000 respectively.
3. Medsan Traders bank overdraft was secured by a second mortgage on the partnership freehold
property and by the deposit of Hamed’s investments together with his personal guarantee.

Required:
Using the format laid down in the Bankruptcy Act (Cap 53) and showing the legal position in relation to
the double proof. Prepare
a) Statement of affairs as at 31 December 2004. (10 marks)
b) Deficiency or surplus accounts as at 31 December 2004 (10 marks)
(Total: 20 marks)

QUESTION EIGHT
Peter Munuve filed his own petition in bankruptcy and the receiving orders were issued by the court on
31 March 2006.

The balances extracted from his books of account as at 31 March 2006 were as follows:

Assets Liabilities
Sh.'000' Sh.'000'
Free hold land 1,250 Loan from bank 1,000
Furniture and fittings 710 Loans from a SACCO 500
Motor vehicle 290 Mortgage on freehold land 1,000
Stock 1,200 Sundry creditors 2,550
Sundry debtors 1,520 Bank overdraft 1,100
Bank balance 20
Drawings 560
Total assets 5,550 Total liabilities 6,150

Additional information:
1 The official receiver appointed by the court has established the realisable values of the bankrupt's
assets to be as follows:
Sh.'000'
Freehold land 1,800
Furniture and fittings 500
Motor vehicle 140
Stock 800
Sundry debtors: Good 1,000
Doubtful-of which Sh. 300,000
is estimated s realisable 400
Bad 120
Private assets debtors other than personnal effects 28
2 Peter Munuve's private obligations amounted to Sh. 12,000.
3 The interest due on the mortgage amounting to Sh. 200,000 had not been recorded s at 31
March 2006.
4 The loan from bank and bank overdrafts were secured by a floating charge on assets and no
interest was outstanding on 31 March 2006.

5 Sundry creditors as at 31 March 2006 comprise:

Sh.'000'
- Assessed income taxes (2003-Sh.100,000, 2004-Sh.85,000 and
2005-Sh.120,000) 305
- Rent due to Government (Sh.50,000 per annum) 300
- Nairobi City Council rates for the year ended 31 December 2004. 20
- 5 months wages due to 5 employees at Sh. 5,000 per employee 125
- 3 months salary due to Munuve's uncle. 24
- Employees NSSF contributions for 36 months at Sh. 12,000 per
annum 36
- Loan from John Kopesha for purchase of trading stock. 100

6 The loan from John Kopesha attracted interest of 5% per annum plus 10% interest based on the
net profit made by Peter Munuve. The unrecorded interest due as at 31 March 2006 was Sh.
7,500.
7 During the year ended 31March 2006, Peter Munuve made business losses of Sh.830,000.

Required:
(a) A detailed statement showing the order of priority in which the sundry creditors would be paid.
(6 Marks)

(b) Statement of affairs as at 31 March 2006. (8 Marks)

(c ) Deficiency accounts as at 31 March 2006. (6 Marks)

(Total: 20 marks)