Page 212 - DCOM205_ACCOUNTING_FOR_COMPANIES_II

Unit 10: Liquidation of Companies: Preparation of Accounts

paid up value of equity shares and there is no provision, excess amount paid on any share notes
must be paid first and the remaining amount must be distributed among the all types of
equity shareholders proportionately.
4. Interest on Debentures and Loans: If the company is solvent, interest on loans and
debentures should be paid up to the date of payment. On the other hand, if the company is
insolvent, interest on debentures and loans should be paid up to the date of commencement
of winding up. If the instructions in the examination problem are against this rule, the
students must do according to the instructions of the question.
5. Dividend on Preference Shares: For non-cumulative preference shares there will be no
arrears of dividend. In the absence of specific wording as non cumulative, the preference
shares must be treated as cumulative. And the dividend on cumulative preference shares
should be paid up to the date of winding up. Regarding the payment of dividend the
provisions of Articles of Association must be followed. As a rule, when the dividend is
declared, that must be treated as debt not as arrear of dividend. But if the dividend is
not declared and that is in arrear, such arrears of dividend will be paid only after the
payment of preferential capital and equity shares capital in full and any surplus is left. The
reason behind this is that the preference shareholders have priority regarding the return
of capital over the return of equity capital. They also have priority regarding the payment
of preference dividend over the payment of dividend of equity shareholders. Thus, arrears
of dividends of preference shares must be paid after the payment of equity capital, in full.
After the payment of equity capital, if any surplus remains, that must be treated as profit.
From this profit, first arrears of preferential dividend must be paid before the payment of
the dividend of equity shareholders.
6. Calls-in-Arrear and Calls-in-Advance on Equity Shares: If the funds are available after the
settlement of all claims of all outsiders and preference shareholders, equity shareholders
are paid off. And in case a company has partly paid up equity shares and preference
shares and the available amount is not sufficient to meet the claims of preference in full,
the company should make the necessary calls on the equity shares to collect a suitable
amount to the claims of preference shareholders. There are chances that some shareholders
may fail to pay such calls. In such cases, if the surplus after the settlement of the claims of
the preference shareholders in full, is not enough to refund of equity shareholders, such
surplus will be first used to refund the share capital of those shareholders who have paid
the calls which were recently made, till the paid up capital equals the amount paid up by
the defaulting equity shareholders. After such refund, if there is still surplus, it will be
distributed equally among the all equity shareholders, including the defaulters. On the
other hand, if some equity shareholders have paid some calls in advance, such calls-in-
advance will be given priority in the refund over the paid up share capital of those calls.
In case the equity shareholders have paid the different amount on their holdings, at the
time of distribution of surplus, an effort should be made that each equity shareholder may
undergo equal loss.

self assessment

Fill in the blanks:

10. A receiver is appointed by...................................
11. The Statement of Receipts and Payments which is prepared by the liquidator is
called.....................

12. A.................................. is prepared to pay the full amount of the shares held by him at the
time of winding up.

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