Question

ABC Ltd went into liquidation. Its statement of financial position at the time of liquidation included: Assets 20,000, Liabilities 10,000, Share capital $15,000 and Retained earnings -$5000. Assets were sold for $18,500. Liabilities along with liquidator’s expenses of $500 were paid. Remaining funds were distributed to shareholders. Pass necessary journal entries.

Answer 1

Solution: (Amount in $)

Date/S.No	Particular	Amount Dr.	Amount Cr
1.	Cash / Bank A/c Dr	18,500
	Loss in Sale of Assets A/c. Dr	1,500
	To Assets A/c.		20,000
	( Being Assets sold )
2.	Liabilities A/c. Dr	10,000
	Liquidation expenses A/c. Dr	500
	To Cash/ Bank A/c.		10,500
	( Being outsider liabilities and expenses on liquidation paid)
3.	Profit and loss A/c. Dr	2,000
	To Liquidation Expenses A/c.		500
	To Loss on sale of Assets A/c.		1,500
	( Being loss & expense transferred to Profit and loss Account)
4.	Share capital A/c. Dr.	15,000
	To Profit and Loss A/c.		7,000
	To Cash/ Bank A/c		8,000
	(Being remaining amount paid to the shareholder)

Note: calculation of Profit and loss balance ( Reserves balance)

Particular	Amount
The existing negative balance of reserves	5,000
Add: Current expenses on liquidation & loss on the sale of assets	2,000
The closing balance of Profit and loss account	7,000