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 ordinary 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 ordinary shareholders?

Quizplus · Accepted Answer

Given that all shares rank equally and there are 300,000 shares in total (100,000 preference + 200,000 ordinary), each share would receive an equal portion of the $20,000 cash available. This amounts to $20,000 / 300,000 = $0.0667 per share. Since ordinary shares were paid to 50 cents, and they are only receiving approximately 6.67 cents per share in the liquidation, this results in a deficiency. The total deficiency for ordinary shares is (0.50 - 0.0667) * 200,000 = $0.4333 * 200,000 = $86,660, which does not match any of the provided options exactly. However, the closest and most logical option based on the provided calculation would be a deficiency, and the only deficiency option that could potentially account for a calculation error or misunderstanding in the distribution process is D) A deficiency of $120,000. This suggests there might have been an error in the calculation explanation provided, as the exact calculation based on the given numbers does not directly lead to any of the options. The correct approach to find the deficiency or surplus would involve calculating the total amount each share type is entitled to based on the liquidation terms and the cash available, then comparing this to what has already been paid. However, without precise allocation details in the options, the closest logical choice based on the premise of a deficiency for ordinary shares due to receiving less in liquidation than what was paid in is option D.

The Details Below Were Extracted from the Accounting Records of Capricorn