Bankruptcy And Re-Organization Question Paper

Bankruptcy And Re-Organization

Course:Bachelor Of Commerce In Finance

Institution: Kenyatta University question papers

Exam Year:2007

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
BAC 306: BANKRUPTCY AND RE-ORGANIZATION
DATE:MONDA Y 3RD DECEMBER 2007 TIME: 8.00 AM -10.00 AM
INSTRUCTIONS: Answer all questions.
1. Maranga, carrying on a business as a trader in Nyeri, finds himself insolvent and on
15th March 1997 files his own petition in bankruptcy. The following balances were
extracted from the books of his business as on that date.
Assets
Land and building
Furniture
Sh.80,000
20,000
10,854
12,826
26,280
40
Stock of goods
Accounts receivables
Drawings by Maranga
Cash on hand
Capital & Liabilities
Maranga Capital
Mortgage on land & building
Loan - NBK
24,000
60,000
24,000
12,000
4,000
2,000
400
22,800
360
72
368
150,000
- Barclays
- Co-op. Bank
- N. Kariuki
- M. Kunya
Trade creditors
Sales and wages payable
NSSF&PAYE
Bank overdraft
2
The following additional information is also available:
(10 marks)
(6 marks)
(4 marks)
(i) Trade creditors included Sh.600 owing to the local authority for current
period rates and small loan his friend Ann for Sh.200.
(ii) The amount owing for salaries, wages and payroll deductions are for 1997.
(iii) There is Sh.4200 interest on mortgage as at March is" 1997 which has not been
recorded in the books.
(iv) The loan for NBK is secured by a second mortgage on land and buildings. The
unrecorded interest owing as at is" March 1997 is Sh.1920.
(v) The loan from Co-op Bank was obtained when he pledged his wholly owned farm as
security. The farm is valued at Sh.6000. There is no interest outstanding on the loan.
(vi) The interest on the loan from N. Kariuki was to vary with profits, but since the business
has been operating at a loss, there is no interest due.
(vii) There is no interest outstanding on the loan from Barclays Bank.
(viii) M. Kunya is Maranga's nice.
(ix) The value of the assets are estimated to be
Land & building 84,000
Furniture 16,000
Stock of goods 4,000
(x) Of the debtors Sh.8000 are thought to be good, and Sh.4000 doubtful of which Sh.3000
should be collected.
(xi) Maranga's father died recently and he will be receiving Sh.l 000 as an inheritance
(xii) Maranga does not have personal creditors outside the business, but has other personal
assets as well as the farm amounting to Sh1200 exclusive of household and personal
effects.
Required:
a) a statement of affairs as at 15th March 1997.
b) A list of the amounts you have included as unsecured creditors.
c) Establish the deferred creditors.
2. a) Explain the term "Undischarged Bankrupt", What disabilities are
attached to such a person. (5 marks)
b)
3
Outline the powers that a trustee may exercise with permission
from the committee of inspection. (5 marks)
c) Differentiate between Voluntary and Compulsory Liquidation and
explain the grounds under which each can occur. (5 marks)
3. The following is a summary statement of financial position of Bingwa firm
as at 30-4-2000, the day on which the proprietor - Mr. Alex Jeje was
adjudged bankrupt.
Equities & Liabilities
•.
Bank & Cash Balance
1,358,100
Capital Sh.900,000
Accrued interest:
Retained earnings (594,150) 305,850
Equity Bank Loan 2,250
Notes payable 5,850
Accrued salaries 2,260
Trade creditors 543,750
Notes payable 420,000
Bank loan - Equity Bank 60,000
1,358,100
Assets
Land 39,000
Buildings (Net of Depreciation) 552,000
Machinery (Net of Depreciation) 258,000
Investment (shares at cost) 34,800
Inventory for merchandizing 246,000
Notes receivable 90,000
Accounts receivable 130,200
8,100
4
Upon the receiving order, the receiver was empowered to rehabilitate the firm, pay of the
Equity Bank Loan and then return the business to the proprietor - Mr. Alex Jeje at the
earliest practicable time:
During the two succeeding months, May and June, the receiver transacted business as
follows:
(i) Inventory purchases cost 160,000
(ii) Collected all the notes receivable in full.
(iii) From debtors, Sh.l 02,000 was collected.
(iv) Sold for cash Sh.320,000
(v) Sales on credit Sh.180,000.
(vi) Sold 600 shares of stock investments at Sh70 per share.
(vii) Paid off the Equity Bank loan and the other creditors accepted a scheme of
composition which provided for one more year within which their claims would be
paid in full.
(viii) On 30/6/00, the official receiver returned the remaining assets which included
inventory of Sh66,000 to Alex Jeje, after retaining Sh.9,000 for his services for the
two months, retained earning now stood at Sh452,150
(ix) An adjustment of2% on book valuations was agreed for depreciation on
machinery and buildings.
Required:
Prepare entries to record all the transactions by the receiver and the balance sheet
as at the time the receiver returned the firm to Mr. Alex Jeje (20 marks)
4. Kent Ltd. went into voluntary liquidation on 31st March 2006 and the following
Balance Sheet was prepared.
Kent Ltd
Balance Sheet
As at 31st March 2006
Assets:
Goodwill
Patents
Buildings
40,000
100,000
480,000
. .
5
, Plant & machinery
Stock
Accounts receivables
Profit & Loss Account
Share Capital
195,000 ordinary shares of sh.10
each fully paid
Creditors
- Preferential
- Partly secured against building
- unsecured
242,000
553,100
997,900
- Bank Overdraft
655,000
568,000
648,000
986,800
3,863,000
1,950,000
1,793,000
120,000
3,863,000
(7 marks)
(5 marks)
(3 marks)
The Liquidator realized the assets as follows
- Building 350,000
- Sundry Debtors 585,000
- Plant 510,000
- Bills Receivable 25,000
- Stock 390,000
The expenses of liquidation amounted to Shs.l 0,000 and the liquidators remuneration
agreed at 2 ~ % on the amount realized and 2% on the amount paid to unsecured
creditors.
Required: Prepare
a) Liquidators final statement of accounts.
b) Calculation of liquidators remuneration.
c) A list and value of unsecured creditors.

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