The liquidator’s task is to realise the assets and disburse the amounts among those who have a rightful claim to it; in every case the liquidator has to prepare a statement showing how much he realised and how the amount was distributed.
The following is the order in which disbursements will be made by the liquidator:
(a) Secured creditors up to their claim or up to the amount realised by sale of securities held by them, whichever is less. The creditors themselves may sell the securities; they will pay to the liquidator any surplus after meeting their claims. Only the surplus is shown as a receipt; the payment to secured creditors is not shown in the liquidator’s final statement of account.
The balance left unsatisfied—that is when the claims of the creditors are more than the amount realised by sale of securities—will be added to unsecured creditors. Workmen’s dues will rank pari passu with the secured creditors. These are called overriding preferential payments.
(b) Legal charges
(c) Remuneration to the liquidator
(d) Costs of winding up
(e) Preferential creditors
(f) Debenture holders or other creditors having a floating charge on the assets of the company. (While preparing the Liquidator’s Statement of Account, payment to preferential creditors is shown, however, after the payment to debenture holders having a floating charge.)
(g) Unsecured creditors. (This may include liability in respect of dividend or amounts due to shareholders on account of profits. In this case, the amount in respect of dividends, etc., shall be paid only after the outsiders are satisfied.)
(h) Preference shareholders
(i) Equity shareholders. Unless the articles contain provisions to the effect that preference shareholders are entitled to participate in the surplus left after meeting the claims of the equity shareholders in full, the whole of the amount left after payment to preference shareholders will go to the equity shareholders.
Receipt and Payment Account
“A receipt and payment account is a summarized cash book for a given period”. “This is a summary of the cash transactions as in the cash book”. Non-profit organizations prepare receipt and payment account at the end of the year. With the help of this account and some additional information, we prepare income and expenditure account to disclose the true results of non-profit organizations.
Receipt and payment account cannot disclose the true result of a non-profit organization. We prepare this account on the basis of the information available from the cash book.
Characteristics of Receipt and Payment Account
Following are the characteristics of receipt and payment account:
(i) It is a summary of the cash book.
(ii) We record all the cash receipts during the whole year on its debit side. Whereas, we write all the cash payments for the whole year on its credit side.
(iii) We include both receipts and payments in cash whether they are of capital and revenue nature.
(iv) We record only cash transactions in receipt and payment account.
(v) It generally shows a debit balance. In the case of overdraft balance, its net balance may be credit.
(vi) Its closing balance shows closing cash in hand and closing cash at the bank.
(vii) Non-cash items such as depreciation, outstanding expenses, accrued incomes are also shown in this account.
Method of Preparation
As we know, we prepare Receipts and payment account with all the cash receipts and cash payments for the whole year. We determine the net result of cash receipts and cash payments of a fixed time through this account.
The left-hand side of this account is known as “Receipts” and right-hand side of this account is known as “Payments”. All cash receipts are recorded on the left-hand side, while all cash payments are recorded on the right-hand side and are arranged in a classified form.
- We start with taking opening balances of cash in hand and cash at bank and enter them on the debit side. (if there is bank overdraft at the beginning, we enter the same on credit side).
- Now, we enter the total amounts of all receipts on the debit side and total amount of all payments on credit side (whether capital or revenue) and whether they are of past, current and future periods.
- We do not include the incomes or expenses that do not involve the inflow or outflow of cash.
- Now, we will find the difference between the total of the debit side and the total of the credit side of the account, the amount so found will be the closing balance of cash or bank.
In case, if the credit side is more than the debit side, the amount will be debited as bank overdraft and we will close the account.