The holder of Debt Two will receive P100,000 from the sale of the pledged
asset. Since the holder wants to receive P142,000 out of the total debt of
P170,000, the company must be able to generate enough cash to pay off
60% of the unsecured liabilities (P42,000/P70,000) after paying 100% of
the liabilities with priority (P110,000).
Excess liability of Debt One in excess of pledged
Asset (P210,000 – P180,000)
Excess liability of Debt Two in excess of pledged
Asset (P170,000 – P100,000)
Total unsecured liabilities
Cash needed for these liabilities
In order for the holder of Debt Two to received exactly P142,000, the other free assets
must be sold for P308,000.
With that much money, the liabilities with priority
(P110,000) can be paid with the remaining P198,000 going to the unsecured debts of
P330,000. This 60% figure would insure that the holder of Debt Two would get
P100,000 from the pledged asset and P42,000 (P70,000 x 60%) from the free assets.
Estate equity, beg.
(P100,000 – P85,000)
Loss on realization (P100,000 – P75,000)
Total assets at net realizable value
Fully secured liabilities
Estimated administrative expense
Estimated amount available
Unsecured claims (P45,000 + P250)
Estimated deficiency to unsecured creditors