1.0
INTRODUCTION
The procedure for
liquidation of cooperative societies is prescribed by the cooperative societies
law applicable to each State of Nigeria.
The Director by order
in writing may cancel the registration of a cooperative society.
2.0
OBJECTIVES
At the end of this note,
you should be able to:
• define liquidation
• explain the types
of liquidation
• give the conditions
or causes of liquidation
• explain the duties
of liquidation
• explain the steps
to be taken in preparing the liquidation accounts.
3.0
MAIN CONTENT
3.1
Liquidation/Realisation Accounts
3.2
Definition
The Advanced
Learner's Dictionary defined liquidation as bringing a business to an end by
dividing up its property to pay debts.
Therefore liquidation
of a cooperative society is referred to as winding
up of affairs of a
registered society or dissolution of registered society at a particular date.
Liquidation of a
cooperative society is the process of winding up a cooperative society thereby
bringing to an end its cooperate life.
3.3
Types of Liquidation
3.3.1
Voluntary Liquidation
The winding up order
is made by Director of cooperative societies on the application of members of
the society. Procedure for making such application is prescribed by the law.
3.3.2
Compulsory Liquidation
Here the director of
cooperative societies decides that the society must be wound up and
consequently issues a winding up order on the society. Conditions for making
such orders are also prescribed by the law.
3.4
Conditions for Liquidation
The following may be
one of the conditions for liquidations:
1. The society has
not commenced working.
2. The society has
ceased working
3. The membership has
fallen below the statutory minimum (i.e. 10).
4. Receipt of an
application made by three fourth of the members of a registered society to the
Director for the liquidation of their society.
3.5
Duties of the Liquidator
You should note that
after the cancellation of the certificate of a registered cooperative society,
the Director may appoint a suitable person from his office as a liquidator. The
purpose of liquidation is to realize the assets of the society and apply the
proceeds to the settlement of the society's liabilities.
3.5.1
Commencement
The liquidator on
commencement of his job is provided a statement of the society's affairs by the
Board or Executive Committee. If the books were not written up as at the date
of commencement, the liquidator updates the accounts and prepares the final
accounts and Balance Sheet. The Liquidator having taken over the assets, books
and records of the society now takes necessary steps to realize the assets on
best possible terms. Realizable values, under liquidation circumstances may be
very much less than book values or going concern value.
3.5.2
Disposal of Assets
Having realized the
assets of the society, the funds of the society are applied to the payment of
liquidation expenses, discharge of the society's liabilities and for such other
payments permitted by the cooperative law.
The cooperative law
has established the following priorities for the disposal of funds of a society
under liquidation:
First - The cost of liquidation
Second - Secured creditors if the asset
mortgaged will realize more than the loan obtained with it.
Third Wages of staff of the society.
Fourth - Other creditors (unsecured) including
members savings and deposits.
Fifth - The share capital
Sixth - Dividend,
interest on savings/deposit or bonus in certain circumstances.
Seventh - An object of local or public utility or
tending to promote cooperation.
3.5.3
Calls
Where the assets
realized are less than the book value, and the funds available are insufficient
to meet the liabilities, members may be called upon to contribute up to their
maximum liability and no more.
3.5.4
Liquidation Accounts
Steps to be taken:
Step
1: Open
a Realisation Account.
Debit this account with all the assets of the society except bank
and cash balances.
Step
2: Open
a Share Account:
Transfer shares in the
Balance Sheet to this account. It is always a credit balance.
Step
3: Open
Sundry Members Account:
Transfer members savings and deposits to this account. It is a
credit balance.
Step 4: Open an account for
wages and salaries of staff: Transfer accrued wages to this account. It is also
a credit balance.
Step 5: Open an account for
secured creditors if applicable: Transfer the accounts of secured creditors to
this account. It is also a credit balance.
Step 6: Open an account for
other creditors: Transfer to the credit of this account the balances of
accounts of their creditors.
Step 7: Open a summary of Reserves
Account: Transfer the Reserves and Provisions unexpended, unappropriated profit
to credit of this account. Transfer Net Loss to the Debit side of this account
if any.
Step 8: Open a New Cash Book
and bring down the cash and bank balances to the debit side of this new cash
book and also debit it with the amount realized on the disposed assets.
Step 9: Credit the Realisation Account with
value realized from the disposed asset.
Step 10: Credit the cash book
with liquidation expenses and debit the realization account.
Step
11: Balance
the Realisation Account.
Step 12: Transfer loss on realization
debit to the side of summary of reserves, provisions etc. Account and the
profit on realization to the credit side of this account.
After taking all the
above steps, balance the summary of reserves, provisions etc account. If the
credit side is more than the debit side, it means that the society has enough
resources to settle its liabilities. If the reverse is the case, it means that
the society does not have enough cash to meet its liabilities.
Distribution
of Fund:
Having balanced the
summary of Reserves Account, pay off the balances on creditors accounts, share
capital account etc. by crediting the cash book and debiting each account. Any
surplus cash remaining should be applied in payment of interest of savings and
deposits, unpaid dividend and for any other purpose approved by the Director.
3.6
Illustration
The liquidation of
Defunct Cooperative Society Ltd. Commenced on 1st February, 2001. The following
Balance Sheet was extracted by the Liquidator on that date.
Balance
Sheet of Defunct Cooperative Society Ltd. As at 1/2/01.
You are required to
prepare the Liquidation Accounts as at that date.
Solution:
4.0 CONCLUSION
After cancellation of
the certificate of registration of a cooperative society, the appointed
liquidator shall be subject to the guidance and control of the Director of
cooperative societies and to any limitations imposed in accordance with the
provision of the law.
5.0
SUMMARY
In this note, we
defined liquidation as winding up of affairs of a registered society thereby
bringing to an end its cooperate life. Also discussed in this note are the
types of liquidation i.e. voluntary and compulsory liquidation; causes of
liquidation or conditions for liquidation; duties of a liquidator; and the
preparation of liquidation accounts.
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