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    Chapter 5 Corporate Liquidation & Reorganization

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    Mikaella Bengco
    This document discusses accounting for corporate liquidation and reorganization. It explains that when an entity is undergoing liquidation, the appropriate measurement basis is realizable value. It also describes the key financial reports prepared during liquidation - the statement of affairs and statement of realization and liquidation. The statement of affairs classifies assets into those pledged to fully secured creditors, partially secured creditors, and free assets. Liabilities are classified as unsecured liabilities with priority, fully secured creditors, partially secured creditors, and unsecured liabilities without priority.

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    Chapter 5 Corporate Liquidation & Reorganization

    Uploaded by

    Mikaella Bengco
    351 views8 pages
    This document discusses accounting for corporate liquidation and reorganization. It explains that when an entity is undergoing liquidation, the appropriate measurement basis is realizable value. It also describes the key financial reports prepared during liquidation - the statement of affairs and statement of realization and liquidation. The statement of affairs classifies assets into those pledged to fully secured creditors, partially secured creditors, and free assets. Liabilities are classified as unsecured liabilities with priority, fully secured creditors, partially secured creditors, and unsecured liabilities without priority.

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    This document discusses accounting for corporate liquidation and reorganization. It explains that when an entity is undergoing liquidation, the appropriate measurement basis is realizable value. It also describes the key financial reports prepared during liquidation - the statement of affairs and statement of realization and liquidation. The statement of affairs classifies assets into those pledged to fully secured creditors, partially secured creditors, and free assets. Liabilities are classified as unsecured liabilities with priority, fully secured creditors, partially secured creditors, and unsecured liabilities without priority.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    351 views8 pages

    Chapter 5 Corporate Liquidation & Reorganization

    Uploaded by

    Mikaella Bengco
    This document discusses accounting for corporate liquidation and reorganization. It explains that when an entity is undergoing liquidation, the appropriate measurement basis is realizable value. It also describes the key financial reports prepared during liquidation - the statement of affairs and statement of realization and liquidation. The statement of affairs classifies assets into those pledged to fully secured creditors, partially secured creditors, and free assets. Liabilities are classified as unsecured liabilities with priority, fully secured creditors, partially secured creditors, and unsecured liabilities without priority.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    ACCOUNTING FOR SPECIAL

    TRANSACTIONS
    (Advanced Accounting 1)

    LECTURE AID

    2021

    ZEUS VERNON B. MILLAN


    Chapter 5
    Corporate Liquidation and Reorganization

    Learning Objectives

    • Describe the accounting for non-going


    concern entities.

    ACCOUNTING FOR SPECIAL


    TRANSACTIONS (Advanced
    Accounting 1) - (by: MILLAN)
    Corporate liquidation

    • Liquidation – is the termination of business operations


    or the winding up of affairs. It is a process by which
    1. The assets of the business are converted into cash,
    2. The liabilities of the business are settled, and
    3. Any remaining amount is distributed to the owners.

    ACCOUNTING FOR SPECIAL


    TRANSACTIONS (Advanced
    Accounting 1) - (by: MILLAN)
    Measurement basis

    • For entities undergoing liquidation, the appropriate


    measurement basis is realizable value.
    ➢ For assets, realizable value is estimated selling price less
    estimated costs to sell.
    ➢ For liabilities, realizable value is the expected net
    settlement amount.

    ACCOUNTING FOR SPECIAL


    TRANSACTIONS (Advanced
    Accounting 1) - (by: MILLAN)
    Financial reports
    • Liquidating entities usually prepare the following classes
    of financial reports:
    1. Statement of affairs
    2. Statement of realization and liquidation

    ACCOUNTING FOR SPECIAL


    TRANSACTIONS (Advanced
    Accounting 1) - (by: MILLAN)
    Statement of affairs
    • Assets in the statement of affairs are classified into the following:
    1. Assets pledged to fully secured creditors – these are assets with
    realizable values equal to or greater than the realizable values of the
    related liabilities for which these assets have been pledged as security.

    2. Assets pledged to partially secured creditors – these are assets


    with realizable values less than the realizable values of the related
    liabilities for which these assets have been pledged as security.

    3. Free assets – these are assets that have not been pledged as security of
    liabilities. These also include the excess of realizable values of assets
    pledged to fully secured creditors over the realizable values of related
    liabilities for which these assets have been pledged.

    ACCOUNTING FOR SPECIAL


    TRANSACTIONS (Advanced
    Accounting 1) - (by: MILLAN)
    Statement of affairs (Continuation)
    • Liabilities in the statement of affairs are classified into the following:
    1. Unsecured liabilities with priority – these are liabilities that, although not
    secured by any asset, are mandated by law to be paid first before any other
    unsecured liabilities. These liabilities include the following: Administrative
    expenses, Unpaid employee salaries and other benefits and Taxes and
    assessments
    2. Fully secured creditors – these are liabilities secured by assets with
    realizable values equal to or greater than the realizable values of such
    liabilities.
    3. Partially secured creditors – these are liabilities secured by assets with
    realizable values less than the realizable values of such liabilities.
    4. Unsecured liabilities without priority – all other liabilities not classifiable
    under (1), (2) or (3) above.
    ACCOUNTING FOR SPECIAL
    TRANSACTIONS (Advanced
    Accounting 1) - (by: MILLAN)
    END
    ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:
    MILLAN)

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