Problem
Isko Co. located at the center of the business district where rapid technological changes occur, experienced financial difficulties due to economic downturns and litigation losses resulting to its insolvency. Because of its inability to meet obligations as they come due the court accepted the petition and granted an order for relief. The company comes under the authority of the bankruptcy court so that any distributions will be made in a fair manner. An interim trustee was appointed by the court regarding the administration of the estate of Isko and is to prepare preliminary report. Presented below is its Statement of Financial Position before the start of liquidation:
Cash P 4,050,000 Notes Payable P750,000
Machinery & Equipment 3,750,000 Wages Payable 2,250,000
Building 7,200,000 Income tax Payable 1,500,000
Loan Payable 3,000,000
Mortgage payable 3,750,000
Contributed capital 6,000,000
Deficit (2,250,000)
It is expected that administrative expenses amounting to P400,000 will be paid. The loan payable is secured by the Machinery & Equipment which is estimated to be sold at P2,250,000 The mortgage payable is fully secured by the estimated realizable value of the Building. At the end of liquidation, the estimated percentage settlement to the partially secured creditor is 92%.
Task
• What is the amount of the total free assets?
• What is the estimated gain (loss) on the realization of the building?
• What is the estimated payment to all liabilities?