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Creditor heiarchy and debtor hierchy

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Creditor heiarchy and debtor hierchy

  • This topic has 1 reply, 2 voices, and was last updated 2 months ago by John Moffat.
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    Posts
  • November 27, 2022 at 3:11 pm #672750
    AliSher123
    Participant
    • Topics: 22
    • Replies: 11
    • ☆

    Please do confirm these for me
    Creditor is the one who has given or lend money to the company
    So in decreasing order of risk for the creditor
    Ordinary shares
    Preference shares
    Trade payables
    Unsecured debt
    Secured debt

    The company on the other hand is the debtor and so the company should use
    Retained earnings first then
    Ordinary shares
    Preferncee shares
    And then debt
    Right ?

    November 27, 2022 at 5:44 pm #672762
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51532
    • ☆☆☆☆☆

    The first part of what you have written is correct.

    However the second part of what you have written does not make sense. Firstly the company is not the debtor – shareholders etc do not owe money to the company. The only relevance is if the company goes into liquidation but the order in which the creditors are paid is subject to the law and is Paper LW and is nothing to do with Paper FM.

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