Statement of Defficiency

Corporate
Liquidation
TABLE OF CONTENTS
Corporation and Statement of Statement of
Liquidation Affairs Deficiency
1 3 4
2 5
Accounting and Reporting Statement of Realization
for Liquidation and Liquidation 2
1 Introduction
CORPORATION AND LIQUIDATION
3
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.
4
LIQUIDATION
is 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.
5
Liquidation Timeline
Mismanag Financial
ement Problems Insolvency
Corporate
Bankruptcy
Liquidation/
Reorganization
6
Accounting and
2 Reporting
For Liquidation
INSOLVENCY
When its total liabilities exceed its total assets, Thereby resulting
for financial difficulty in paying off debts:
◉ VOLUNTARY - The insolvent corporation voluntarily
applies A petition to a court of law to be discharged from its
liabilities
◉ 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
8
Difference of illiquidaty and
Insolvency
 Illiquidity- Is the inability pay off
debts because of shortage in
cash or other liquid assets
 Insolvency- is the total inability
to pay off debts because lack
assets
9
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
10
ROLES IN CORPORATION
LIQUIDATION
Court Creditor Trustees
◉ Dismiss the ◉ Creditors appoint a trustee ◉ The principal duties of the trustee
debtor’s or to manage the debtor’s are to continue operating the
creditor’s estate debtor’s business if directed by the
bankruptcy Accountant court, realize the free assets of the
petition debtors estate and pay cost to
◉ Proper reporting of the
◉ Grant an order for financial condition of the unsecured creditors.
relief under the debtor and adequate ◉ The trustee is responsible for
insolvency law accounting and reporting keeping accounting records to
for the trustee for the enable the filing of a final report
debtor’s estate. with the court.
11
Appointment of Trustee or
Examiner
◉ The court may appoint trustee to manage the
enterprise
◉ Trustee is appointed because of fraud, dishonestly,
incompetence, or gross mismanagement by
current owners or managers, or to protect the
interests of creditors or stockholders.
12
Powers and duties of the
trustee
◉ Prepare and file in court a list of creditors of each class and
their claims and a list of stockholders of each class.
◉ Investigate the acts, conduct, property, liabilities, and
business operations of the enterprise, consider the
desirability of continuing operations, and formulate a plan
for such continuance for submission to the bankruptcy
judge if management of the debtor has not done so.
◉ Report to the court any facts ascertained as to fraud against
or mismanagement of the debtor’s enterprise.
13
Measurement basis
 PFRSs
 Going concern
 Don’t apply to liquidating
entities
 liquidating entities
 realizable value (Estimated
selling price list disposal cost
) for Assets and expected net
settlement amount for
liabilities
14
Financial reports
1. Statement of affairs
2. Statement of realization and
liquidation
 Additional statements such
as disclosure and summary
of cash receipts and
disbursements may also be
prepared.
15
Statement of
Deficiency
16
17
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
“
Format
Company Name
Statement of Deficiency
Date
Estimated Losses on Realization of Assets
Additional Liabilities:
Estimated Gross Loss
Less:
Estimated Gains on Realization of Assets
Additional Assets
Estimated Net Loss
Less:
Loss Absorbed by Stockholders:
Estimated Deficiency To Unsecured Creditors (loss to be absorbed by unsecured
creditors)
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Thanks!
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Corporate

 A corporation is a legal entity created

◉ termination of business operations or the winding

A deficiency statement is usually prepared to accompany

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