ExpertMedium2 marksMultiple Choice
ACCA · Question 12 · Business Finance
Section A
PrintConstruct, a 3D-printing construction firm, has unfortunately gone into liquidation. The liquidator is distributing the remaining assets.
Which TWO of the following stakeholder groups rank HIGHER than unsecured trade payables in the statutory hierarchy of liquidation?
Section A
PrintConstruct, a 3D-printing construction firm, has unfortunately gone into liquidation. The liquidator is distributing the remaining assets.
Which TWO of the following stakeholder groups rank HIGHER than unsecured trade payables in the statutory hierarchy of liquidation?
Answer options:
A.
Ordinary shareholders
B.
Holders of debt secured by a fixed charge
C.
Preference shareholders
D.
Employees for unpaid wages (preferential creditors)
How to approach this question
Recall the creditor hierarchy in liquidation: 1. Fixed charge holders, 2. Liquidator fees, 3. Preferential creditors (employees), 4. Floating charge holders, 5. Unsecured creditors, 6. Preference shares, 7. Ordinary shares.
Full Answer
In a liquidation, the standard hierarchy of payout is: 1) Creditors with fixed charges, 2) Expenses of liquidation, 3) Preferential creditors (e.g., employee wages), 4) Creditors with floating charges, 5) Unsecured creditors (trade payables), 6) Preference shareholders, 7) Ordinary shareholders.
Common mistakes
Believing preference shareholders are a type of creditor. They are equity holders and rank below all debt.
Practice the full ACCA FM — Financial Management Practice Exam 1
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