) ) ) ) ) ) ) ) ) Presented by Group 5

) ) ) ) ) ) ) ) )

Corporate
Liquidation
Artizona, Angelica
Balagso, Ellaiza
Bunao, Jaynico
Castro, Remie
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

MEET THE GROUP

Angelica V. Artizona Ma.Remie Castro Jaynico Bunao Ellaiza F. Balagso

) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
TABLE OF CONTENTS
Contents

01 02
Statement of Affairs Statement of Deficiency

03 04
Statement of Realization Reorganization and Debt
and LIquidation Restructing
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
INSOLVENCY

is a financial condition where

the business’ liabilities
exceeded the fair value of its
assets which will result to the
difficulty in paying off its
debts
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
ILLIQUIDITY

the business is still solvent

but it unable to pay its
maturing debts due to
lack of cash or other liquid
assets.
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
THERE ARE TWO TYPES OF INSOLVENCY AS
PROVIDED BY INSOLVENCY ACT OF THE
PHILIPPINES:

) ) ) ) ) ) )
Voluntary Insolvency Involuntary Insolvency

the insolvent corporation three or more creditors of

voluntarily applies a
petition to a court of law
to be discharged from its
liabilities
the insolvent corporation file
a petition to a court of law
for the adjudication of the
corporation as insolvent.
) ) ) ) ) ) ) ) )
LIQUIDATION
) ) ) ) ) ) ) ) )

is the termination of business operations or the

winding up of business. It is the process by which
the assets of the business are converted into cash,
the liabilities of the business are settled and any
remaining amount is distributed to the owners.
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

MEASUREMENT BASIS

Assets
Estimated selling price less
estimated cost to sell

Liabilities
Expected net settlement
amount
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
FINANCIAL REPORT

STATEMENT OF AFFAIRS STATEMENT OF REALIZATION

OF AND LIQUIDATION

– initial report which - shows how the

shows the available receiver managed the
asset values and debts assets of the debtor
of the debtor corporation on behalf of
corporation. the creditors
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

STATEMENT OF AFFAIRS
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
ASSETS
ASSETS PLEDGE TO FULLY SECURED ASSETS PLEDGE TO PARTIALLY
CREDITORS SECURED CREDITOR

These are assets with realizable These are assets with

value equal to or greater than the
realizable values of the related
liabilities for which these assets
have been pledge as a security. The
excess from paying the fully secured
creditors remains for the unsecured
creditors
realizable values less than the
realizable value of the
liabilities for which these
assets have been pledge as a
security
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

FREE ASSETS

These are assets that have not been

pledged as security of liabilities. These
also include excess of realizable
values of related assets pledged to
fully secured creditors over the
realizable values of related liabilities
for which these assets have been
pledge
Examples:
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
LIABILITIES
01 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 includes the following:

a. Administrative expenses of the receiver

b. Unpaid employee’s salaries and wages, and benefit plans
c. Taxes
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
02 Fully Secured Liabilities
These are liabilities secured by assets with realizable
values equal or greater than the realizable values of
such liabilities

03 Partially Secured Liabilities

These are liabilities secured by assets with
realizable values less than the realizable values
of such liabilities

04 Unsecured Liabilities w/o priority

All other liabilities for which the creditor has no lien
on specific assets of the debtor corporation which
are unsecured and without priority
FORMAT OF
THE
STATEMENT
OF AFFAIRS
Geng Geng Group Inc. has decided to liquidate its operations due to insolvency. The statement of financial position of the company shows
the following:
Step 1: Restate assets and liabilities to realizable values
Step 2: Identify the classification of assets and liabilities
Step 3: Estimated Recovery Percentage (Optional)
𝑵𝒆𝒕 𝑭𝒓𝒆𝒆 𝑨𝒔𝒔𝒆𝒕𝒔
Estimated recovery percentage =
𝑻𝒐𝒕𝒂𝒍 𝑼𝒏𝒔𝒆𝒄𝒖𝒓𝒆𝒅 𝑳𝒊𝒂𝒃𝒊𝒍𝒊𝒕𝒊𝒆𝒔 𝒘𝒊𝒕𝒉𝒐𝒖𝒕 𝑷𝒓𝒊𝒐𝒓𝒊𝒕y
Step 4: Statement of Affairs
 Thank You
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

01
TOPIC

STATEMENT OF DEFICIENCY
A deficiency statement is usually prepared to accompany the statement of
affairs to prove the deficiency to unsecured creditors.
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
WAYOF COMPUTING
DEFICIENCY SOLVING

01 02 TOTAL ASSETS @ NRV

GAINS VS LOSSES LESS TOTAL LIABILITY @
SETTLEMENT

03 04 TOTAL UNSECURED
NET FREE ASSETS -TOTAL
LIABILITY *( 1-RECOVERY
UNSECURED LIABILITIES
%)
) ) ) ) ) ) ) ) ) FORMAT
) ) ) ) ) ) ) ) )
FORMAT
Corporation Name
Statement of Deficiency
DATE

Estimated Losses on Realization of Asset XXX

add: Additional Liabilities XXX
Estimated Gross Loss XXX
less: Estimated Gains on Realization of Assets ( XXX)
add: Additional Assets XXX
Estimated Net Loss XXX
less : Loss absorbed by the stockholders ( XXX)
Estimated Deficiency to Unsecured Creditors XXX
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

01
problems

ILLUSTRATIONS
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

01
problems

ILLUSTRATION 1
) ) ) ) ) ) ) ) ) Additional Information
) ) ) ) ) ) ) ) )
a. The company expects to realize the amounts shown on A/R
b. The inventory can be sold for 32,000
c. The estimated realizable value of supplies is 500
d. The prepayments are expected to expire during the liquidation period
e. The Land has a market value of 37,500
f. The building has a current value of 57,500
g. The equipment is expected to be sold at a net selling price of P14,000
h. Patents written off the books in the past years but with a realizable value of 10,375
i. The books do not show accrued employee benefits amounting to 3,000. Estimated liquidation expenses is 7,500
j. All other liabilities are stated at their expected settlement amounts.
Requirement:

How much is the deficiency to unsecured creditors without priority to in the statement of affairs.
Prepare the Statement of deficiency
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

EST. RECOVERY % = NET FREE ASSET/total unsecured liabilites without priority

Total Free Assets 62,375.00

Total Unsecured liabilities with Priority (15,000.00)
Net free assets 47,375.00
divided by : Total unsecured liab without Priority 50,000.00
Esrimated Recovery % 0.95
95%
) ) ) ) ) ) ) ) ) alternative 2: net free asssets less unsecured liabilities
) ) ) ) ) ) ) ) )

Total Free Assets 62,375.00

Total Unsecured liabilities with Priority (15,000.00)
Net free assets 47,375.00
less: Total unsecured liab without Priority (50,000.00)
DEFICIT (2,625.00)

ALTERNATIVE 3: TOTAL ASSETS LESS total liab

total assets @ nrv 167,875.00

less liab @ settlement amount 170,500.00
deficiency (2,625.00)
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

01
problems

ILLUSTRATIONS 2
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
ASSETS @ nrv vs Liab @ settlement value
Est. Realizable value
Assets:
A/R 119,280.00
A/R 411,250.00
Building 630,000.00
Cash 199,850.00
Merchandise 92,750.00
Prepaid Expense -
Goodwill -
Total est. Rv 1,453,130.00
less: Unsecured LIAB w/ P. 97,125.00
Fully secured liab 490,000.00
Partially secured liab 707,000.00
Unsecured liab w/o p. 224,875.00
Estimated Deficiency (65,870.00)
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

recovery % = net free asstes/ unsecured liability without priority

Total free assets 333,130.00

less: Unsecured with priority 97,125.00
NET Free assets 236,005.00
divided by:Unsecured with priority 301,875.00
deficiency 78%

301875*(1-78%)= 65870
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

01
problems

SAMPLE PROBLEMS
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

vv

QUESTION : How much is the deficiency to unsecured creditors without priority to in the statement of affairs.
) ) ) ) ) ) ) ) ) SOLUTION
) ) ) ) ) ) ) ) )

Total assets at realizable value:

ASSET 250,000
ADD: Dividend Receivables 5,000
TOTAL 255,000
LESS: Total LIABILITIES
recorded total liabilities (320,000)
Interest Payable (2,000)
Est. Administrative expense (10,000)
Est. deficiency to unsecured 77,000
creditors w/o priority
) ) ) ) ) ) ) ) ) When the Pasig CO. filed for liquidation with the SEC,it prepared the ff:
) ) ) ) ) ) ) ) )

vv
) ) ) ) ) ) ) ) ) SOLUTION
) ) ) ) ) ) ) ) )

Realizable value:
Current assets P 50,000
Land and building P240,000
Less mortgage payable 200,000 40,000
Total 90,000
Less accounts payable 160,000
Estimated deficiency to unsecured creditors P 70,000
 Thank You
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

STATEMENT OF
REALIZATION AND
LIQUIDATION
Bunao, Jaynico A.
 STATEMENT OF REALIZATION AND
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

LIQUIDATION
·This statement shows a complete
record of the transactions of the
receiver for a period of time.
·Its structure is similar to T-accounts.
DR CR
 DR CR

ASSETS TO BE REALIZED
 DR CR

ASSETS TO BE REALIZED

represents the total non-cash assets available for disposal

as at the beginning of the period. This is measured at book
value.
DR CR

ASSETS REALIZED
 DR CR

ASSETS REALIZED

Represent the actual net proceeds from the conversion

of non-cash assets into cash during the period.
 DR CR

ASSETS ACQUIRED
 DR CR

ASSETS ACQUIRED

Represents previously unrecorded assets that were recognized

during the period. Similar terms are “additional assets” or “new
assets”.
DR CR

ASSETS NOT REALIZED

 DR CR

ASSETS NOT REALIZED

the unsold non-cash assets as the end of the

period, measured at book value.
DR CR

LIABILITIES TO BE LIQUIDATED
 DR CR

LIABILITIES TO BE LIQUIDATED

represents the total liabilities to be settled as at the

beginning of the period. This is measured at book value.
 DR CR

LIABILITIES LIQUIDATED
 DR CR

LIABILITIES LIQUIDATED

represents the actual net settlement amounts of

liabilities paid during the period.
 DR CR

LIABILITIES LIQUIDATED

represents the actual net settlement amounts of

liabilities paid during the period.
DR CR

LIABILITIES ASSUMED
 DR CR

LIABILITIES ASSUMED

represents previously unrecorded liabilities that were

recognized during the period. Similar terms are “additional
liabilities” or “new liabilities”
 DR CR

LIABILITIES NOT LIQUIDATED

 DR CR

LIABILITIES NOT LIQUIDATED

the unpaid liabilities as at the end of the period, measure

at book value.
 DR CR

SUPPLEMENTARY EXPENSE
 DR CR

SUPPLEMENTARY EXPENSE

Represent expenses incurred during the period excluding

assets losses and write-offs.
DR CR

SUPPLEMENTARY INCOME
 DR CR

SUPPLEMENTARY INCOME

Represents income realized during the period excluding

gains on asset realization and liability settlement.
 DR CR

ASSETS TO BE REALIZED ASSETS REALIZED

ASSETS ACQUIRED ASSETS NOT REALIZED

LIABILITIES LIQUIDATED LIABILITIES TO BE LIQUIDATED

LIABILITIES NOT LIQUIDATED LIABILITIES ASSUMED

SUPPLEMENTARY EXPENSE SUPPLEMENTARY INCOME

) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

DR CR
Debit>Credit
=Net loss on
realization and liquidation
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

DR CR
Debit<Credit
=Net gain on
realization and liquidation
ILLUSTRATION 1: ABC CO.’s statement of realization and liquidation
shows the following:
ASSETS:
Assets to be realized 2,000,000
Assets acquired 15,000
Assets realized 1,180,000
Assets not realized 220,000
HOW MUCH IS THE NET GAIN (LOSS)
LIABILITIES:
FOR THE PERIOD?
Liabilities liquidated 2,130,000
Liabilities not liquidated 1,190,000
Liabilities to be liquidated 2,870,000
Liabilities assumed 32,000

SUPPLEMENTARY ITEMS:
Supplementary expenses 25,000
Supplementary income 18,000
ASSETS: DR CR
Assets to be realized 2,000,000
Assets acquired
Assets realized
15,000
1,180,000
2,000,000 1,180,000
Assets not realized 220,000 15,000 220,000
LIABILITIES: 2,130,000 2,870,000
Liabilities liquidated 2,130,000
Liabilities not liquidated 1,190,000 1,190,000 32,000
Liabilities to be liquidated 2,870,000
Liabilities assumed 32,000 25,000 18,000
SUPPLEMENTARY ITEMS: 5,360,000 4,320,000
Supplementary expenses 25,000
Supplementary income 18,000 1,040,000
NET LOSS
ILLUSTRATION 2: EKSSIE is going to liquidate. A receiver/trustee will administer te liquidation. EKSSIE’s
financial position on January 1, 2021, before the start of the liquidation, is summarized below:

Cash 40,000 Accrued expenses 221,000

Accounts Receivable 220,000 Current tax payable 350,000
Note Receivable 100,000 Accounts payable 1,000,000
Inventory 530,000 Note Payable 300,000
Prepaid Assets 10,000 Loan payable 2,000,000
Land 500,000 Total Liabilities 3,871,000
Building, net 2,000,000
Share Capital 500,000
Equipment, net 300,000
Retained earnings(deficit) (671,000)
Total Assets 3,700,000
Capital deficiency (171,000)
Total liabilities and equity 3,700,000
Additional Information:
A. 10,000 interest is receivable on the note and 15,000 interest is payable on the loan
B. Administrative expenses of 30,000 are expected to be incurred in the liquidation process.
Jan. 1, 2023 Cash 40,000
Accounts Receivable 220,000
Note Receivable 100,000
Inventory 530,000
Prepaid Assets 10,000
Land 500,000
Building 2,000,000
Equipment 300,000
Estate Deficit 171,000
Accrued Expenses 221,000
Current tax payable 350,000
Accounts payable
1,000,000
Note Payable
300,000
Loan payable
2,000,000
 A statement of realization and liquidation shows information on the progress of the
liquidation process. Accordingly, it is prepared at the end of each period.

The following transactions occurred during the period;

a. Only 165,000 were collected on the accounts receivable. The remainder was written-off
b. The interest on the note was collected in full, but only 90% was collected on the
principal. The remainder was written off.
c. Half of the inventory was sold for 300,000. Actual cost to sell were 5,000
d. The prepaid assets were written-off
e. The land and building were sold for 2,600,000
f. The equipment was sold for 220,000
g. Of the total accrued expense, only the accrued salary of 25,000 were paid. the blance
remains outstanding.
h. The current tax poyable was paid in full
i. The interest and the principal on the loan were paid in full
j. The note payable was settled for 220,000. The lender cancelled the balance.
k. Administrative expenes of 27,000 were paid
 A. Only 165,000 were collected on the accounts receivable.
The remainder was written-off
Cash 40,000 Cash 165,000
Accounts Receivable 220,000 Estate Deficit 55,000
Note Receivable 100,000
Inventory 530,000 Accounts Receivable 220,000
Prepaid Assets 10,000
Land 500,000 B. The interest on the note was collected in full, but only 90% was
Building 2,000,000 collected on the principal. The remainder was written off.
Equipment 300,000
171,000
Estate Deficit Cash {100k +(100k x 90%) 100,000
Accrued Expenses 221,000
Current tax payable 350,000
estate Deficit 10,000
Accounts payable 1,000,000 Note Receivable 100,000
Note Payable 300,000
Interest Receivable 10,000
Loan payable 2,000,000
C. Half of the inventory was sold for 300,000. Actual cost to sell were
5,000
Cash (300k -5k) 295,000
Inventory (530 x 50%) 265,000
Estate Deficit 30,000
 D. The prepaid assets were written-off
Estate Deficit 10,000
Cash 40,000 Prepaid Assets 10,000
Accounts Receivable 220,000
Note Receivable 100,000
Inventory 530,000
E. The land and building were sold for 2,600,000
Prepaid Assets 10,000
Land 500,000 Cash 2,600,000
Building 2,000,000 Land 500,000
Equipment 300,000
171,000
Building 2,000,000
Estate Deficit
Accrued Expenses 221,000 Estate Deficit 100,000
Current tax payable 350,000
Accounts payable 1,000,000 F. The equipment was sold for 220,000
Note Payable 300,000
Loan payable 2,000,000
Cash 220,000
Estate Deficit 80,000
Equipment 300,000
 G. Of the total accrued expense, only the accrued salary
of 25,000 were paid. the blance remains outstanding.
Cash 40,000 Accrued Expenses 25,000
Accounts Receivable 220,000
Note Receivable 100,000 Cash 25,000
Inventory 530,000
Prepaid Assets 10,000 H. The current tax poyable was paid in full
Land 500,000
Building 2,000,000
300,000
Equipment Current Tax Payable 350,000
Estate Deficit 171,000
Accrued Expenses 221,000
Cash 350,000
Current tax payable 350,000
Accounts payable 1,000,000 I. The interest and the principal on the loan were paid in full
Note Payable 300,000
Loan payable 2,000,000

Interest payable 15,000

Loan Payable 2,000,000
Cash 2,015,000
 J. The note payable was settled for 220,000. The lender
cancelled the balance.
Cash 40,000 Note Payable 300,000
Accounts Receivable 220,000
Note Receivable 100,000 Cash 220,000
Inventory 530,000 Estate Deficit 80,000
Prepaid Assets 10,000
Land 500,000
Building 2,000,000 k. Administrative expenses of 27,000 were paid
Equipment 300,000
171,000
Estate Deficit Estate Deficit 27,000
Accrued Expenses 221,000
Current tax payable 350,000
Cash 27,000
Accounts payable 1,000,000
Note Payable 300,000
Loan payable 2,000,000
) ) ) ) ) ) ) ) ) The amounts to be presented in the statement of realization and
liquidation are identified as follows
) ) ) ) ) ) ) ) )

Assets to be realized
Cash 40,000
Accounts Receivable 220,000
Note Receivable 100,000 3,700,000-40,000=3,660,000
Inventory 530,000
Prepaid Assets 10,000
Land 500,000
Building, net 2,000,000
Equipment, net 300,000
Total Assets 3,700,000
) ) ) ) ) ) ) ) ) The amounts to be presented in the statement of realization and
liquidation are identified as follows
) ) ) ) ) ) ) ) )

Assets acquired = 10,000

Assets realized
a. Collection of accounts receivable 165,000
b. Collection of interest and note 100,000
c. Sale of inventory 295,000
e. Sale of Land and Building 2,600,000
f. Sale of equipment 220,000
Assets realized 3,380,000
) ) ) ) ) ) ) ) ) The amounts to be presented in the statement of realization and
liquidation are identified as follows
) ) ) ) ) ) ) ) )

Assets not realized = 265,000 530,000 x 50%

Liabilities to be liquidated
Accrued expenses 221,000
Current tax payable 350,000
Accounts payable 1,000,000
Note Payable 300,000
Loan payable 2,000,000
Total Liabilities 3,871,000

Liabilities assumed =15,000

) ) ) ) ) ) ) ) ) The amounts to be presented in the statement of realization and
liquidation are identified as follows
) ) ) ) ) ) ) ) )

Liabilities Liquidated
g. Payment for accrued salaries 25,000
h. Payment for current tax payable 350,000
i. Payment for interest and loan 2,015,000
j. Payment for note payable 220,000
Liabilities Liquidated 2,610,000

Liabilities not Liquidated

Accrued expenses 196,000
Accounts Payable 1,000,000
Liabilities not liquidated 1,196,000
) ) ) ) ) ) ) ) ) The amounts to be presented in the statement of realization and
liquidation are identified as follows
) ) ) ) ) ) ) ) )

Supplementary expense = 27,000

There is no supplementary income during

the peiod
) ) ) ) ) ) ) ) ) THE NET GAIN(LOSS)DURING THE PERIOD IS COMPUTED AS FOLLOWS:
DR CR
) ) ) ) ) ) ) ) )

ASSETS TO BE REALIZED 3,660,000 3,380,000 ASSETS REALIZED

ASSETS ACQUIRED 10,000 265,000 ASSETS NOT REALIZED

LIABILITIES LIQUIDATED 2,610,000 3,871,000 LIABILITIES TO BE LIQUIDATED

LIABILITIES NOT LIQUIDATED 1,196,000 15,000 LIABILITIES ASSUMED

SUPPLEMENTARY EXPENSE 27,000 - SUPPLEMENTARY INCOME

TOTALS 7,503,000 7,531,000

28,000

NET GAIN
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
 Thank You
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

Corporate
Reorganization
Ellaiza F. Balagso
Implementation of a
business plan to
restructure or rehabilitate a
corporation with the hopes
of increasing company
value.
Control over the company
is normally retained by the
ownership.
 Plan for Reorganization
The plan must include:
provisions altering or
Reorganization
modifying the interest
Plan and rights of the
creditors and
stockholders of the
SEC, C&S company
additional provisions
 SEC NOT
CONFIRM
Review Plan
Fair
no
Cre& Sto &
equitable

yes
no
Accept

yes
CONFIRMED
Journal entries:
Adjustment of book values of asset
Reduction of par value of capital stock
Extension of due dates and revision of interest rates of
notes payable
Exchange of equity securities for debt securities.
Elimination of a retained earnings deficit= “fresh start
accounting”
Group Reorganization

Recapitalization

Quasi-reorganization

Corporate Rehabilitation

Troubled Debt Restructing

) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )

Illustrations

Ellaiza F. Balagso
Among the provisions of the plan of reorganization confirmed by SEC for Wow
Company were the following:

Amend articles of incorporation to authorize 10,000 shares at 12%, P1 par

preferred stock and 15,000 shares of new P2 par common stock. 10,000 shares
of the new common stock were to be exchanged on a share-for-share basis for
all 10,000 shares of the P100 par common stock currently outstanding.

Exchange 5,000 shares of the P1 par, 12% preferred stock (at a current fair value
of P10 a share) to creditors for trade accounts payable totaling P52,000.
Pay 80 centavos on the peso for trade accounts payable totaling P62,700.

In recording the above provisions of reorganization, total gain on debt

discharge is:
Among the provisions of the plan of reorganization
Trade accounts
confirmed by SEC for Wow Company were the P 114, 700
payable
following:
12% preferred stock 5,000
Amend articles of incorporation to authorize 10,000
shares at 12%, P1 par preferred stock and 15,000 Paid in capital in
shares of new P2 par common stock. 10,000 shares 45,00
excess of par
of the new common stock were to be exchanged on
a share-for-share basis for all 10,000 shares of the Cash 50,160 (100, 160)
P100 par common stock currently outstanding.
Gain from discharge
Exchange 5,000 shares of the P1 par, 12% preferred of indebtedness P 14, 740
stock (at a current fair value of P10 a share) to
creditors for trade accounts payable totaling
P52,000.
Trade accounts payable (P52,000 + P62,700) P114,700
Pay 80 centavos on the peso for trade accounts
12% preferred stock (5,000 x P1) P 5,000
payable totaling P62,700.
Paid in capital in excess of par (5,000 x P9)P 45,000
Cash (P62,700 x P0.80) P50,160
In recording the above provisions of reorganization,
total gain on debt discharge is:
The following data pertains to the transfer of real estate pursuant to a
troubled debt restructuring by May Co. to Tanny Corp. in full liquidation
of May's liability to Tanny:

Carrying amount of liability liquidated 150,000

Carrying amount of real estate transferred 100,000
Fair value of real estate transferred 90,000

a. What amount should May report as a gain (loss) on restructuring of

payables?
b. What amount should May report as a gain (loss) on transfer of real
estate?
The following data pertains to the transfer
of real estate pursuant to a troubled debt
restructuring by May Co. to Tanny Corp. in a. CA of real estate transferred P100,000
full liquidation of May's liability to Tanny:
FV of real estate 90, 000
Loss on restructuring of payables P (10,000)
Carrying amount of liability liquidated
150,000
Carrying amount of real estate transferred
100,000
Fair value of real estate transferred
90,000
CA of liability P150,000
b. FV of real estate transferred 90,000
a. What amount should May report as a
Restructuring gain P 60,000
gain (loss) on restructuring of payables?
b. What amount should May report as a
gain (loss) on transfer of real estate?
The Sun Corporation has gone through reorganization on December 31, 2013. On this date,
the company has the following assets (market value is based on the discounted future
cash flows that are anticipated):

Book Value Market Value

Account receivable P20,000 P18,000
Inventory 143,000 111,000
Land and buildings 250,000 278,000
Machinery 144,000 121,000
Patents 100,000 125,000

The company has a reorganization value of P800,000. The company has 50,000 shares of
P10 par value common stock outstanding. A deficit retained earnings balance of P670,000
also is reported. The owners will distribute 30,000 shares of this stock as part of the
reorganization plan.
The company's liabilities will be settled as follows:

Accounts payable (existing at the date on which the order of reorganization was
granted) of P180,000 will be settled with an 8 percent, two-year note for P35,000.
Accounts payable (incurred since the date of reorganization was granted) of P97,000
will be paid in the regular course of business.
Note payable-Citibank of P200,000 will be settled with an 8 percent, five-year note
for P50,000 and 15,000 shares of the stock contributed by the owners.
Note payable-Metro Bank of P350,000 will be settled with a 7 percent, eight- year
note for P100,000 and P15,000 shares of the stock contributed by the owners.

Prepare a statement of financial position for the Sun Corporation upon its emergence
from reorganization.
The Sun Corporation has gone through reorganization on December 31, 2013.
On this date, the company has the following assets (market value is based on
the discounted future cash flows that are anticipated):

Book Value Market Value

Account receivable P20,000 P18,000
Inventory 143,000 111,000
Land and buildings 250,000 278,000
Machinery 144,000 121,000
Patents 100,000 125,000

The company has a reorganization value of P800,000. The company has

50,000 shares of P10 par value common stock outstanding. A deficit retained
earnings balance of P670,000 also is reported. The owners will distribute
30,000 shares of this stock as part of the reorganization plan.
The company's liabilities will be settled as follows:

Accounts payable (existing at the date on which the order of reorganization

was granted) of P180,000 will be settled with an 8 percent, two-year note for
P35,000.
Accounts payable (incurred since the date of reorganization was granted) of
P97,000 will be paid in the regular course of business.
Note payable-Citibank of P200,000 will be settled with an 8 percent, five-
year note for P50,000 and 15,000 shares of the stock contributed by the
owners.
Note payable-Metro Bank of P350,000 will be settled with a 7 percent, eight-
year note for P100,000 and P15,000 shares of the stock contributed by the
owners.

Prepare a statement of financial position for the Sun Corporation upon its
emergence from reorganization.
 Thank You
) ) ) ) ) ) ) ) )
) ) ) ) ) ) ) ) )