Distribution of Surplus by Liquidator | Company

When all the liabilities are paid by the Liquidator and even then some amount remains in balance with him, he distributes this balance called surplus among the shareholders of the company.

The following guidelines are as follows:


(1) Surplus is to be distributed as per the provisions of the Memorandum of Association and Articles of Association.

(2) If Preference shares have priority over Equity shares, then payment on these shares is made first and later on payment on Equity shares is made. If Preference Dividend has been declared but its payment has not been made then the dividend is treated as debt and not as an arrear of dividend. All the arrears of dividend on Preference shares are paid along with the preference capital.

(3) If there are various types of shares but no provision is made for giving priority to any class of them then excess amount paid on any share be returned first and the balance be distributed proportionately all classes of shares.

Illustration 1:

From the data relating to a company (in voluntary liquidation), you are asked to prepare liquidator’s statement of account.

(a) Cash with liquidator (after all assets are realised and secured creditors arid debenture holders are paid) is Rs 6,73,800.


(b) Preferential creditors to be paid Rs 30,000.

(c) Other unsecured creditors Rs 2,15,000.

(d) 4,000 6% preference shares of Rs 100 each, fully paid.

(e) 2,000 equity shares of Rs 100 each, Rs 75 per share paid up.


(J) 6,000 equity shares of Rs 100 each, Rs 60 per share paid up.

(g) Liquidator’s remuneration 2% on preferential and other unsecured creditors.

(h) Preference dividends were in arrears for 2 years. 



Illustration 2:

Mr. X has been appointed as liquidator of ABC Ltd.

The Balance Sheet at the time of liquidation i.e., 1.1.2005 is given below:

Fixed assets are sold for Rs 1,20,000 to a Debenture holder holding Rs 40,000 debentures and cash is received after setoff. Cash realised from debtors was Rs 80,000 and the liquidation expenses amounted to Rs 1,000. Liquidator is paid Rs 1,000 fixed allowance plus 2% commission on collection including cash in hand Rs 5,000 as remuneration. Stock is sold for Rs 10,000. Prepare the Liquidator’s statement of account. 

Illustration 3:

Following is the balance sheet of X Ltd. on 31st March, 2004:

There was voluntary liquidation of X Co. Ltd. and the assets were sold to Y Co. Ltd. for Rs. 1.50,000.

Its payment is made as under:

(i) Rs. 60,000 in Cash (which is sufficient to pay off creditors, bank overdraft and liquidation expenses Rs. 2,000),

(ii) Rs. 90,000 by allotment of 12,000 shares of Rs. 10 each of Y Co. Ltd. which will be treated as Rs. 7.50 per share paid-up. Prepare liquidator’s statement of account in the books of X Co. Ltd. and pass the necessary journal entries in the books of Y Co. Ltd.

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