Corporation Liquidation

4 Types of Creditors

1. FULLY SECURED
-100% full amount of the debt is collectible
-FMV of Asset > Liability

2. PARTIALLY SECURED
-FMV of Assets < Liability

3. UNSECURED W/ PRIORITY
a. Liquidation Expenses To be paid by the Free Assets in order of priority
b. Salaries if free assets is less than unsecured w/
c. Taxes priority

4. UNSECURED W/O PRIORITY

-no asset assigned
- cannot be paid 100%, only to the extent of the estimated recovery
percentage

FREE ASSETS

-No liability assigned

-excess assets from fully secured liability

4 Column Analysis

ASSET LIABILITY FREE ASSET USL W/O PRIORITY

XXX > XXX XXX

XXX < XXX XXX
No assigned Liability XXX

No Asset pledge XXX

TOTAL FA TOTAL USL W/O P

*Asset = SILENT= INCLUDE INTEREST

*Liability = SILENT= INCLUDE INTEREST
 Free assets xxx
Less: USL w/ Priority (xx) Est. Recovery % = Net Free Assets
Net Free Assets xxx USL w/o Priority
Less: USL w/o Priority (xx)
Estimated Deficiency (XX)

Statement of Realization & Liquidation

Assets to be Realized Assets Realized

Increase in Assets Assets not Realized

Liabilities Liquidated Liabilities to be Liquidated

Liabilities not Liquidated Increase in Liabilities

Supplementary Debits Supplementary Credits

TOTAL DEBITS TOTAL CREDITS

ANALYSIS!
DR > CR = NET LOSS
DR < CR = NET GAIN

Estate Equity, Beg. xxxx Estate Equity, End xx(xx)

Gain/ (Loss) xx(xx) Liability, End xxxx
Estate Equity, End xx(xx) Asset, End xxxx
Asset Not Realized (xxx)
Cash Balance, End xxx

Illustration
A bankrupt entity has undergone corporate liquidation. Presented below is its statement of
financial position before the start of liquidation:
Cash P 300,000 Accounts Payable P 100,000
Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loans Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)