Insolvency Accounts Individual & Partnership Firm BCOM 1st Year Short Notes
Insolvency Accounts Individual & Partnership Firm BCOM 1st Year Short Notes :- In this post you will get full information related to BCOM Insolvency accounts-Individual And Partnership firm Short Question Answer Study Material Notes Sample Model Paper Unit wise Chapter Wise syllabus of the Content.
SHORT ANSWER QUESTIONS
Q.1. What do you mean by insolvency?
Ans. When a person is unable to pay or settle his debts and his liabilities are greater than his assets. men he is called insolvent after being adjudicated insolvent by a competent court. In legal sense, the term insolvent is applied to a person against whom an order of adjudication has been passed by a competent court. Such an order is passed against such a debtor whose liabilities exceed his assets and who commits an act of insolvency. A debtor is said to be committing an act wledge B of insolvency if he:
1. Refuses to pay a debt of 500 or more.
2. Transfer all or substantially all his property to a third person be ‘insolvent’ who has with the intent to defraud his creditors. 3. Notifies his creditors that he has suspended or about to suspend in the ordinary course of payment of his debts.
4. Petitions the court to be adjudged on insolvent.
In India, there are two acts governing insolvency affairs, i.e. Presidency Towns Insolvency Act, 1909 and Provincial Insolvency Act, 1920. The former applies to the three presidency Towns of India -Section 218) of the Indian viz. Calcutta (Kolkata), Bombay (Mumbai) and Madras (Chennai) while the later is applicable to rest of India. These acts are applicable to individuals, partnership firms and Hindu undivided families (but not a minor). A joint stock company is outside the purview of these acts.
Q.2. What is statement of affairs?
Ans. Statement of Affairs: The insolvency proceedings begin with filling of an insolvency petition in a competent court of law. If the court passes an order adjudging the debtor an insolvent, then the court appoints an officer, known as receiver (or official assignee) to take possession of the property of the insolvent. The insolvent is required to submit a statement of his assets and liabilities to the receiver. This statement is called statement of affairs. This statement shows the financial position of the insolvent.
This statement is prepared to show the amount of deficiency and the amount available for distribution among creditors. This statement has to be presented in a statutory form. The form of statement of affairs, prescribed by rules made under the Presidency Towns Insolvency Act is given below Under Provincial Insolvency Act, no such statement of affairs is required but the insolvent debtor is required to furnish in his petition itself practically all the information that is given in the Statement of affairs to be submitted under the Presidency Towns Insolvency Act.
Prescribed Form of Statement of Affairs:
Statement of Affairs of …
(As on …)
Q.3. Distinguish between the computation of preferential creditors under the Presidency Town Insolvency Act, 1909 and the Provincial Insolvency Act, 1920.(2014)
Ans. List ‘D’ of the statement of affairs contains the amount of preferential creditors. Preferential creditors are defined under both the Insolvency Act. Section 49 of the Presidency Towns Insolvency Act, 1909 and Section 61 of the Provincial Insolvency Act, 1920 provide the rules regarding the preferential creditors. On the basis of rules provided in the acts, following distinction may be pointed out:
1. Amounts due to Central, State or Local Governments are preferential debts under both the acts.
2. Amounts due under legal liabilities also are preferential creditors under both the acts.
3. Outstanding salaries and wages of any clerk, servant or labourer in respect of the service rendered during four months preceding the date of filing the petition for insolvency are also preferential debts under both the acts, but their maximum allowable amounts are different:
(a) Under Presidency Towns Insolvency Act:
(i) Each Clerk
(ii) Maximum 300
(iii) Each labourer/servant
(iv) Maximum 100
(b) Under Provincial Insolvency Act:
(i) Each clerk, labourer or servant
(ii) Maximum 20 4. Rent due to landlord not exceeding one month is preferential debt under the Presidency Town Insolvency Act, but no amount of rent is preferential debt under the Provincial Insolvency Act,
Q.4. Write short notes on:
1. Deficiency account.
2. Insolvency of a partnership firm.
3. Unsecured creditors.
Ans. 1. Deficiency Account : Excess of liabilities over the realisable value of the assets is called deficiency which is shown in list ‘H’. A separate account is prepared to explain the reasons for the deficiency as shown by the statement of affairs and to show how the capital contributed by the owner has lost along with the unpaid amount of the creditors. Deficiency account is prepared like the capital account with two sides reversed. Capital and all other items that increase capital (i.e. trading profit, salary, interest on capital) profit on realisation of assets, excess of private assets over private liabilities of the owner, etc. are shown on the left side whereas items which decrease capital, i.e. trading losses, drawings, loss on realisation of assets, speculation losses, etc. are shown on the right side of this account. The amount of deficiency being the excess of losses and drawings over capital and profits is shown on the left hand side of the deficiency account. The specimen form of deficiency account is given below:
|Particulars||Amount (Rs. )||Particulars||Amount (Rs.)|
|Excess of assets over liabilities, i.e. capital on..||–||Excess of liabilities over assets on..||–|
|Interest on capital salary to proprietor||–||Trading losses||–|
|Trading profits||–||Bad debts||–|
|Profit on realisation assets||–||Drawings||–|
|Excess of private assets over private liabilities||–||Loss on realisation of assets||–|
|Exemption from liability||–||Speculation losses||–|
|Deficiency as per statement of affairs||–||Liability or expenses not accounted so far Excess of private liabilities over assets||–|