The details below were extracted from the accounting records of Capricorn Ltd (a company in the process of liquidation). $\begin{array}{ll}
\text {$ 100000 \$ 1 $ preference shares fully paid }&\$ 100,000\
\text {$ 200000 \$ 1 $ ordinary shares paid to 50 cents }&100,000\
&\$200,000\
\text { Cash available (after payment of all creditors) }&\$20,000
\end{array}$
Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
What will be the deficiency or surplus apportioned to preference shareholders?

Question

The details below were extracted from the accounting records of Capricorn Ltd (a company in the process of liquidation). $\begin{array}{ll}
\text {$ 100000 \$ 1 $ preference shares fully paid  }&\$ 100,000\
\text {$ 200000 \$ 1 $ ordinary shares paid to 50 cents }&100,000\
&\$200,000\
\text { Cash available (after payment of all creditors) }&\$20,000
\end{array}$
 Assume that the constitution of Capricorn Ltd states that in the event of liquidation, all shares are to rank equally, based on the number of shares held, in distributing any surplus or deficiency.
What will be the deficiency or surplus apportioned to preference shareholders?

Quizplus · Accepted Answer

Given the total cash available is $20,000 and all shares rank equally, the total shares are 300,000 (100,000 preference + 200,000 ordinary). Each share gets an equal part of the $20,000, which is $20,000/300,000 = $0.0667 per share. Preference shareholders should have received $100,000 (for 100,000 shares at $1 each) but will only receive $6,667 (100,000 shares * $0.0667), resulting in a deficiency of $93,333, which is closest to the provided option of a deficiency of $60,000. However, based on the provided options and the context of the question, it seems there might be a misunderstanding in the calculation or the interpretation of the options. The correct approach shows there's a deficiency, but the exact amount provided in the options does not match the calculated deficiency. The principle of equal distribution based on share count leads to a deficiency since the available cash is less than the total value of shares at their full value.

The Details Below Were Extracted from the Accounting Records of Capricorn