AFAR 02 Corporate Liquidation
AFAR 02 Corporate Liquidation
Corporate Liquidation
MARK ALYSON B. NGINA, CPA, CMA
CORPORATE LIQUIDATION
MARK ALYSON B. NGINA, CPA CMA
Insolvency
The financial condition of a debtor that is generally unable to pay its or his liabilities as they fall due in the ordinary course
of business or has liabilities that are greater than its or his assets.
Corporate Liquidation
Liquidation is the termination of business operations or the winding up of the affairs. It is a process by which:
1. Noncash assets are converted to cash (i.e. realization)
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2. Liabilities of the business are settled (i.e. liquidation)
3. Any remaining amount is distributed to shareholders
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Financial Reports
1. Statement of Affairs
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2. Statement of Realization and Liquidation
3. Statement of Receipts and Disbursement
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EXERCISE 1
The following data are provided by the Troubled Company:
Assets at book value
e₱3,000,000
Assets at net realizable value 2,100,000
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Liabilities at book value:
Fully secured mortgage 1,200,000
Unsecured accounts and notes payable 1,400,000
Unrecorded liabilities:
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Questions:
1. When the Trustee records the assets and liabilities, it should include an estate deficit of
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2. The statement of affairs prepared by the trustee at this time should include an estimated deficiency to unsecured
creditors of:
EXERCISE 2
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Because of inability to pay its debts, the Liit Kita Manufacturing Company has been forced into bankruptcy as of April 30.
The statement of financial position on that date shows:
Assets Liabilities
Cash ₱ 2,700 Accounts payable ₱ 52,500
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(074) 665 6774 0916 840 0661 [email protected] MAY 2021 CPA REVIEW SEASON
Page 2 of 3 | AFAR 02
EXERCISE 3
A trustee has been appointed for Restructured Company, which is being liquidated. The following transactions occurred
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after the assets were transferred to the trustee:
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1. Credit sales by the trustee were ₱100,000. Cost of goods sold were ₱72,000, consisting of all the inventory
transferred from Restructured.
2. The trustee sold all ₱20,000 worth of marketable securities for ₱15,000.
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3. Receivables collected by the trustee:
Old: ₱28,000 of the ₱50,000 transferred
New: ₱65,000
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4. Disbursements by the trustee:
Old current payables: ₱31,000 of the ₱65,000 transferred
Trustee's expenses: ₱6,000
5. Recorded ₱24,000 depreciation on the plant assets of ₱120,000 transferred from Restructured.
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Required:
Prepare a statement of realization and liquidation.
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Solution:
Restructured Company
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Supplementary Items
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Liabilities
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EXERCISE 4
The following data were taken from the statement of realization and liquidation of Bagsak Corporation for the three-month
period ended December 31:
Assets to be realized ₱ 110,000 Liabilities assumed ₱ 60,000
Assets acquired 120,000 Liabilities liquidated 120,000
Assets realized 140,000 Liabilities not liquidated 150,000
Assets not realized 50,000 Supplementary credits 170,000
Liabilities to be liquidated 180,000 Supplementary charges 156,000
What is the net income (loss) for the period?
EXERCISE 5
The Statement of Realization and Liquidation for Goes Out Corporation is as follows:
Assets to be realized ₱720,000 Liabilities assumed ₱ 600,000
Assets acquired 480,000 Liabilities not liquidated 780,000
Assets realized 660,000 Supplementary credits 1,320,000
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Liabilities to be liquidated 960,000 Supplementary debits 1,260,000
Liabilities liquidated 840,000
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Retained earnings decreased by ₱144,000. The ending balances of common stock and retained earnings are ₱1,200,000
and (₱900,000), respectively.
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Questions:
1. The beginning balance of cash is
2. The ending balance of cash is
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"We can achieve anything in life - the only limiting factors are in our own thoughts"
“Let your fear instruct and prepare you. Don’t let it stop you.
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Move confidently ahead and live with all the fullness that life can offer.”
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