Corporate liquidation

Focuses more on the "quitting concern" issue.

Statement of affairs
It is a statement prepared as of a specific date or any given point in time and it shows balance sheet inforation with:

1. Assets measured at expected net realizable values and classified on the basis of availability for:
a. fully secured creditors,
b. partially secured creditors,
c. priority creditors,
d. unsecured creditors.

2. Liabilities are classified in the statement of affairs as:

a. unsecured priority,
b. fully secured,
c. partially secured,
d. unsecured.

The following captions are commonly found in the statement of affairs:

1. Assets Pledged to fully secured creditors - These are assets with realizable values equal to, or in excess of the liabilities for whic
have been pledged as collateral.

2. Assets Pledged to Partially Secured Creditors - These are assets with realizable values that are less than the liabilities for which
been pledged as security.
3. Free Assets - These are assets not pledged to specific secured liabilities or pledged assets with a realizable value in excess of the
needed to satisfy claims of secured creditors.
3. Unsecured Liabilities with Priority - These are liabilities that must, by stature, be paid off before any secured debts can be satisf
administrative expenses such as filing fees, attorney's fees, referee's fees, trustee's fees, and other direct cost of the insolvency pro
unpaid employee salaries and other benefits, and taxes and assessments).

5. Fully Secured Creditors. These are liabiities covered by a pledge of specific assets of realizable value equal to or in excess of suc
6. Partially secured creditors - These are liabilities covered by a pledge of specific assets of a realizable value that is less than such
7. Unsecured liabilities without priority. These are liabilities covered by a pledge of specific assets of a realizable value that is less
liabilities.

8. Stockholder's Equity. The balances of the stockholder's equity accounts depends on the amount of free assets available. If there
deficiency of assets to satisfy unsecured creditors, all claims of equity holders are extinguished. Only if there are free assets in exc
unsecured liabilities can stockholders share in any distribution.

Statement of realization and liquidation

An activity statement that is intended to show process toward the liquidation.

Reorganization
The implementation of a business plan to restructure or rehabilitate a corporation with the hopes of increasing company value.
 of the liabilities for which they

n the liabilities for which they have

ble value in excess of the amount

cured debts can be satisfied (e.g.,

ost of the insolvency proceedings,

qual to or in excess of such liabiities.

lue that is less than such liabilities.
alizable value that is less than such

assets available. If there is a

ere are free assets in excess of

easing company value.

ABC CO., has filed for voluntary insolvency and is going to liquidate. ABC's statement of financial position prior to the liquidation

ASSETS
Current assets
Cash 40,000.00
Accounts receivable 220,000.00
Note receivable 100,000.00
Inventory 530,000.00
Prepaid assets 10,000.00
900,000.00

Noncurrent assets
Land 500,000.00
Building, net 2,000,000.00
Equipment, net 300,000.00
2,800,000.00

Total assets 3,700,000.00

LIABILITIES AND EQUITY

Current liabilities
Accrued expenses 221,000.00
Current tax payable 350,000.00
Accounts payable 1,000,000.00
1,571,000.00

Noncurrent liabilities
Notes payable (secured by equipment) 300,000.00
Loan payable (secured by land and building) 2,000,000.00
2,300,000.00

Capital deficiency
Share capital 500,000.00
Retained earnings (Deficit) - 671,000.00
- 171,000.00

Total liabilities and equity 3,700,000.00

Additional information:
The following were determined before the start of the liquidation process:
1. Only 76% of the accounts receivable is collectible.
2. Php10,000 interest is receivable on the note.
3. The inventory has an estimated selling price of Php420,000 and estimated cost to sell of Php10,000.
4. The prepaid assets are non-refundable.
5. The land and building have fair values of Ph2,000,000 and Php800,000, respectively, but ABC Co. expects to sell both assers ar
6. The equipment has an estimated net selling price of Php200,000.
7. Administrative expenses of Php30,000 are expected to be incurred in the liquidation process.
8. The accrued expenses include accrued salaries of Php25,000.
9. Php15,000 interest is payable on the loan.
10. All the other liabilities are stated at their expected net settlement amounts.

Statement of Affairs

Book values ASSETS

Assets pledged to fully secured creditors:
2,500,000.00 Land and building
Loan payabe
Interest payable

Assets pledged to partially secured creditors:

300,000.00 Equipment, net
Note payable

Free assets:
40,000.00 Cash
220,000.00 Accounts receivable
100,000.00 Note receivable
- Interest receivable
530,000.00 Inventory
10,000.00 Prepaid assets
Total free assets
Less: Unsecured liabilities with priority
Administrative expense
Accrued salaries
Current tax payable
Net free assets
Estimated deficiency
3,700,000.00

Book values LIABILITIES AND EQUITY

Unsecured liabilities with priority:
- Administrative expense
25,000.00 Accrued salaries
350,000.00 Current tax payable
Total

Fully secured creditors:

2,000,000.00 Loan payable
- Interest payable
Total

Partially secured creditors:

 300,000.00 Notes payable
Equipment, net

Unsecured creditors without priority:

196,000.00 Accrued expenses, net of accrued salary
1,000,000.00 Accounts payable

- 171,000.00 Shareholder's equity

3,700,000.00

Estimated recovery for the unsecured liabilities without priority

s statement of financial position prior to the liquidation process is shown below:

ted cost to sell of Php10,000.

respectively, but ABC Co. expects to sell both assers ar a package price of Php2,600,000.

he liquidation process.
Realizable values Available for unsecured creditors

2,600,000.00
- 2,000,000.00
- 15,000.00 585,000.00

200,000.00
- 300,000.00 -

40,000.00
167,200.00
100,000.00
10,000.00
410,000.00
- 727,200.00
1,312,200.00

30,000.00
25,000.00
350,000.00 405,000.00
907,200.00
388,800.00 squeezed
1,296,000.00

Realizable values Unsecured nonpriority liabilities

30,000.00
25,000.00
350,000.00
405,000.00 -

- 2,000,000.00
- 15,000.00
- 2,015,000.00 -
 300,000.00
- 200,000.00 100,000.00

196,000.00
1,000,000.00 1,196,000.00

- -
1,296,000.00

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