Preparation of Statement of Affairs and Deficiency Account

Statement of Affairs and Deficiency Account are crucial documents prepared during insolvency proceedings. They provide a snapshot of an insolvent entity’s financial status and help in determining the shortfall between assets and liabilities.

1. Statement of Affairs:

The Statement of Affairs is a financial document that lists all assets and liabilities of an insolvent entity. It’s essentially a balance sheet prepared for insolvency purposes.

Preparation Steps:

1. List of Assets:

   • Fixed Assets: Include land, buildings, machinery, etc.
   • Current Assets: Include cash, debtors, stock, etc.
   • Other Assets: Include investments, goodwill, etc.

2. List of Liabilities:

   • Secured Liabilities: Loans or debts secured against specific assets.
   • Unsecured Liabilities: Debts not secured against specific assets.
   • Preferential Liabilities: Certain claims like employee wages or taxes.

3. Preparation Table:

2. Deficiency Account:

The Deficiency Account shows the shortfall or deficiency when the total liabilities exceed the total assets. It reflects the gap between the amounts needed to satisfy all creditors and the actual realizable value of the assets.

Preparation Steps:

1. Determine Total Assets and Liabilities:
   • Use the values from the Statement of Affairs.
2. Calculate Deficiency:
   • Subtract the total liabilities from the total assets to find the deficiency.
3. Prepare the Deficiency Account Table:

Detailed Example:

Statement of Affairs

Deficiency Account