CORPORATE

LIQUIDATION &
REORGANIZATI
ON Presented by:
Jumao-as, Junalisa
Maano, Carlo Rey
 Table of contents

Introduction
01 Corporation and Liquidation; 02 Statement of Affairs
Accounting and Reporting

Statement of
Deficiency Statement of
03 Accompanies the Statement of 04 Realization and
Affairs Liquidation
 01
Introduction
Corporation and Liquidation; Accounting and Reporting
Corporation
⟩ A corporation is a legal entity created
by individuals, stockholders, or
shareholders, with the purpose of
operating for profit.

⟩ Corporations are allowed to enter into

contracts, sue and be sued, own assets,
remit federal and state taxes, and
borrow money from financial
institutions.
Liquidation
⟩ The process of bringing a business to
an end and distributing its assets to
claimants. It is an event that usually
occurs when a company is insolvent,
meaning it cannot pay its obligations
when they are due.
⟩ A corporation is a legal entity
created by individuals, stockholders,
or shareholders, with the purpose of
operating for profit.
⟩ Corporations are allowed to enter
into contracts, sue and be sued, own
assets, remit federal and state taxes,
and borrow money from financial
institutions.
 Insolvency
When its total liabilities exceed its Difference of illiquidity and
total assets, Thereby resulting for insolvency
financial difficulty in paying off debts:
⟩ Illiquidity- Is the inability pay off debts
◉ VOLUNTARY – The insolvent because of shortage in cash or other
corporation voluntarily applies A liquid assets
petition to a court of law to be
discharged from its liabilities ⟩ Insolvency- is the total inability to pay
off debts because lack assets
◉ INVOLUNTARY – three or more
creditors of the insolvent corporation
file a petition to a court of law for the
adjudication of the corporation as
insolvent
Corporate Liquidation
◉ 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
 Roles in Corporate Liquidation
Court Creditors
◉ Dismiss the debtor’s or creditor’s ◉ Creditors appoint a trustee to manage the
bankruptcy petition debtor’s estate
◉ Grant an order for relief under the
insolvency law

Accountant Trustees
◉ Proper reporting of the financial ◉ They are to continue operating the debtor’s
condition of the debtor and business if directed by the court, realize the free
adequate accounting and reporting assets of the debtors estate and pay cost to
for the trustee for the debtor’s unsecured creditors.
estate. ◉ Responsible for keeping accounting records to
enable the filing of a final report with the court.
 Liquidation Timeline

Liquidation or
Mismanagement Insolvency Reorganization

1 2 3 4 5

Financial Bankruptcy
Problems
 Liquidation Process
Appointment
Payment Conclusion
of a Liquidator to Creditors of Liquidation

1 2 3 4 5
Distributio
Realization n
of Assets to Shareholders
 Financial Reports

1 2
Statement of Affairs Statement of Realization
and Liquidation
3
Additional statements
such as disclosure and
summary of cash receipts
and disbursement
M
E
A
S
◉ PFRS
U
R •Going concern ◉Liquidating Entities
E •Don’t apply to
liquidating
M entities
•Realizable Value
(Estimated selling
E price less disposal cost)
N for Assets and;
T expected net settlement
amount for Liabilities.
 02
Statement of Affairs
 Statement of Affairs
⟩⟩ This shows the financial position of a liquidating entity — the assets that are
available for sale, the claims of creditors to be settled and the claims of the
owners. It is similar to a regular Statement of financial position or balance
sheet, except that assets are measured at realizable values (and liabilities
at expected net settlement amounts), and the presentation is different.
 A
1 Pledged to Fully Secured Creditors
Assets with realizable values ≥ expected net settlement amounts
of the related liabilities for which the assets have been pledged
S
S
as security. The excess is available to unsecured creditors.

Pledged to Partially Secured

2 Creditors
Assets with realizable values < expected net settlement amounts
of the related liabilities for which the assets have been pledged
as security. The deficiency must come from the proceeds of
E
T
other assets.

3 Free Assets

S
Not been pledged and includes also excess of
pledged to fully secured creditors.
 Liabilities
1 Fully Secured Creditors 2 Partially Secured Creditors
Liabilities secured with Liabilities secured with
sufficient assets. insufficient assets.

Unsecured Creditors w/ Unsecured Creditors

3 Priority
Mandated by law to be paid first.
• Administrative expenses – direct
costs.
• Salaries and other benefits.
• Taxes and assessments
4 w/out Priority
All other liabilities not
classified under (1), (2), and
(3).
1 Restate the Assets and
S
Liabilities
T
E
2 P
Classifications of the assets and liabilities
S

3 (Optional) Estimated Recovery Percentage (ERP)

 3
Statement of Deficiency
Accompanies the Statement of Affairs
 Statement of Deficiency
⟩⟩ A deficiency statement is usually prepared to accompany the
Statement of Affairs to prove the deficiency to unsecured creditors. It
shows the causes of deficiency by summarizing losses and gains from
realization and unrecorded adjustments to assets and liabilities
ILLUSTRATIO
N!
Godbless to all!
Requirements:
◉ Statement of Affairs
◉ Statement of Deficiency
 04
Statement of Realization and
Liquidation
Statement of Realization and Liquidation

• Reports the actual process.

• This shows how the “receiver” managed
the assets of the debtor corporation on
behalf of the creditors.
 Statement of Realization and Liquidation
Assets to be realized xx XX Assets realized

Assets acquired xx XX Assets not realized

Liabilities liquidated xx XX Liabilities to be liquidated

Liabilities not liquidated xx XX Liabilities assumed

Supplementary expenses xx XX Supplementary income

○ Debit > Credit = NET LOSS ON

REALIZATION AND

LIQUIDATION

○ Debit < Credit = NET GAIN ON

REALIZATION AND
Problem 1
Problem 1
 Asset not yet realized Liabilities not yet realized
Cash A/R Inventory Trading securities Land Building Equipment A/P N/P Salaries Taxes Bank loan
6/30/2020 84,000 60,000 120,000 19,800 73,500 45,000 36,000 6/30/2020
 Liabilities not yet realized
A/P N/P Salaries Taxes Bank loan Expenses Income
6/30/2020 208,500 175,500 30,000 13,500 141,000
 STATEMENT OF REALIZATION AND LIQUIDATION
6/30/20-12/31/20
Assets t be realized 354,300 Asset realized
Assets acquired Assets not realized
Liabilities liquidated 568,500 Liabilities to be liquidated
Liabilities not liquidated Liabilities assumed
Supplementary expenses Supplementary income
TOTAL
 Asset not yet realized Liabilities not yet realized
Cash A/R Inventory Trading securities Land Building Equipment A/P N/P Salaries Taxes Bank loan
6/30/2020 84,000 60,000 120,000 19,800 73,500 45,000 36,000 6/30/2020
A 18,000 (19,800)
 Liabilities not yet realized
A/P N/P Salaries Taxes Bank loan Expenses Income
6/30/2020 208,500 175,500 30,000 13,500 141,000

A 1,800
 Asset not yet realized Liabilities not yet realized
Cash A/R Inventory Trading securities Land Building Equipment A/P N/P Salaries Taxes Bank loan
6/30/2020 84,000 60,000 120,000 19,800 73,500 45,000 36,000 6/30/2020
A 18,000 (19,800)

B 48,000 63,000
 Liabilities not yet realized
A/P N/P Salaries Taxes Bank loan Expenses Income
6/30/2020 208,500 175,500 30,000 13,500 141,000

A 1,800

B 111,000
 Asset not yet realized Liabilities not yet realized
Cash A/R Inventory Trading securities Land Building Equipment A/P N/P Salaries Taxes Bank loan
6/30/2020 84,000 60,000 120,000 19,800 73,500 45,000 36,000 6/30/2020
A 18,000 (19,800)

B 48,000 63,000 (120,000)

 Liabilities not yet realized
A/P N/P Salaries Taxes Bank loan Expenses Income
6/30/2020 208,500 175,500 30,000 13,500 141,000

A 1,800

B 120,000 111,000
 Liabilities not yet realized
A/P N/P Salaries Taxes Bank loan Expenses Income
6/30/2020 208,500 175,500 30,000 13,500 141,000

A 1,800

B 120,000 111,000

C (30,000) (13,500) (41,000) 8,000

 Asset not yet realized Liabilities not yet realized
Cash A/R Inventory Trading securities Land Building Equipment A/P N/P Salaries Taxes Bank loan
6/30/2020 84,000 60,000 120,000 19,800 73,500 45,000 36,000 6/30/2020
A 18,000 (19,800)

B 48,000 63,000 (120,000)

C (92,500)

12/31/20 57,500 123,000 0 0 73,500 45,000 36,000

 Liabilities not yet realized
A/P N/P Salaries Taxes Bank loan Expenses Income
6/30/2020 208,500 175,500 30,000 13,500 141,000

A 1,800

B 120,000 111,000

C (30,000) (13,500) (41,000) 8,000

12/31/20 208,500 175,000 0 0 100,000 129,800 111,000

 STATEMENT OF REALIZATION AND LIQUIDATION
6/30/20-12/31/20
Assets t be realized 354,300 139,800 Asset realized
Assets acquired 63,000 277,500 Assets not realized
Liabilities liquidated 84,500 586,500 Liabilities to be liquidated
Liabilities not liquidated 484,000 0 Liabilities assumed
Supplementary expenses 129,800 111,000 Supplementary income
TOTAL 1,115,600 1,096,800
NET LOSS 18,800
1,115,600 1,115,600
Answer 1:
 Answer # 2:

Estate Deficit, 6/30/20 (130,200)

ADD: Loss on realization and liquidation (18,800)

Estate Deficit, 12/31/20 (149,000)

 Answer # 3
Assets = Liability + Equity

335,000 484,000 149,000

CASH 57,500

NON CASH 277,500

 Analysis 1/1/21- 6/30/21
Asset not yet realized Liabilities not yet realized
Cash A/R Land Building Equipment A/P N/P Bank loan Expenses Income
01/01/2021 57,500 123,000 73,500 45,000 36,000 208,500 175,000 100,000

a 70,000 (70,000)

B 88,000 (73,500) 14,5000

C 30,000 (36,000) 6,000

D (187,750) (87,750) (100,000)

E ( 7,000) 7,000

6/30/21 50,750 53,000 0 45,000 0 208,500 87,750 0 13,000 14,500

 STATEMENT OF REALIZATION AND LIQUIDATION
12/31/20- 6/30/21
Assets t be realized 277,500 179,500 Asset realized
Assets acquired 0 98,000 Assets not realized
Liabilities liquidated 187,750 484,000 Liabilities to be liquidated
Liabilities not liquidated 209,250 0 Liabilities assumed
Supplementary expenses 13,000 14,500 Supplementary income
TOTAL 774,500 776,000
Net Gain 1,500
776,000 776,000
Answer # 4
Answer # 5

Estate deficit, 1/1/21 ( 149,000)

Less: Net Gain on realization and liquidation 1,500

Estate deficit , 6/30/21 (147,500)

Answer # 6
 5
Reorganization
• Means the implementation of a
business plan to restructure or
rehabilitate a corporation with
the hopes of increasing company
value
• Mostly involves changing the
entity’s capital structure
Some samples where corporate reorganization may
occur:

 Buyouts and takeovers, or threats thereof

 Business combinations, reverse acquisitions, sale or
transfer of subsidiaries, and demergers
 Formation of new holding company (e.g. when the new
holding company is a vehicle for enlisting shares in a stock
market while the business remains with the subsidiaries
 Recapitalization
 An insolvent corporation enters into a corporate
rehabilitation program
A. Group Reorganization – ownership within a group of companies changes
( maybe because of new acquisitions, buyouts, etc.)
B. Recapitalization – change in capital structure ( old to new)
C. Quasi – reorganization – accounting procedure to revalue the assets and
liabilities of a financially troubled corporation
D. Corporate rehabilitation – process whereby a financially troubled corporation
is administer by another party in order to try to bring back the corporation to
its former financial condition
E. Troubled debt restructuring - settlement of obligation at other than the
originally agreed method of settlement.