Corporation Liquidation
A corporation under financial distress is a corporation suffered business
failure due to incompetent management, poor operating control,
inadequate financing, fraud or other unexpected adverse of event.
Financial Distressed corporation may undergo:
Quasi-reorganization aka corporate readjustment (IA2)
Where an entity will establish a “fresh start” in accounting sense.
Whereby all asset, liabilities, and share capital balance are
restated into their respective Fair Value for purpose of
eliminating deficit.
Debt Restructuring (IA2)
A negotiation between creditor and debtor to establish a new
agreement to the debt. (generally binabawasan eh)
Liquidation
A process of converting non-cash asset into cash
Reports prepared under Liquidation Process
Statement of affairs
A statement prepared as of given point of time. To show the asset and
liabilities of the debtor from liquidation point of view. Hence, asset are
valued at NRV.
Classification of Asset:
A. Asset pledged with FULLY secured creditors (enough yung net Yung excess
mapupunta dito
realizable value of asset to settle the liability of creditor) estimated
cash proceeds is equal or more than the liability attached
B. Asset pledge with PARTIALLY secured creditors (not enough to
settle the liability with the net realizable value of the asset)
estimated cash proceeds is less than attached liability
C. Free assets (not encumbered or secure to any creditors, kumbaga
excess na to. Hence may amount from FULLY secured asset na pede
mapunta dito. Including cash) Asset not pledged
Classification of Liabilities
A. Secured liabilities
a) Fully Secured liabilities
NRV of pledged asset is equal or more than the liability
b) Partially Secured liabilities
NRV of pledged asset less than the liability. The uncovered
portion amount will belong to
B. Unsecured liabilities
a) Unsecured with priority
Amount of liability with no pledged asset but mandated by law to
be paid first:
i. Tax payable
ii. Salaries payable
iii. Administrative payable
b) Unsecured without priority
Excess liability with no pledged asset attached
Used for computing:
Expected Recover Percentage: This percentage pertains to amount of
unsecured liability will be paid from net free asset
Only Unsecured Liabilities Total free Asset xx
WITHOUT priority (Unsecured w/ prio) (xx)
Unsecured liabilities WITHOUT PRIORITY includes those excess amount from partially
secured liabilities. However, when computing for how much paid to unsecured
liabilities without priority, only those liability not pledged with any asset in the first
place.
In other words, nagamit lang yung amount from partially secured liability for the sake
of computing Expected recovery percentage.
Estimated Deficiency: Amount refers excess of unsecured liabilities
without priority to NFA
Estimated payment in partially secured: amount include the payment
from pledged asset plus expected recovery amount from unpaid portion
Statement of Realization and Liquidation
this statement states the actual results of the liquidation by the trustee.
Asset na balak iliqudiate (not Liabilities expected to liquidated
Including cash
Asset na bagong kuha or recognized Liabilities na bagong kuha or
recognized
Loss siya kasi mas mataas yung
amount na inexpect na kuhang pera
kaysa sa actual na nakuha.
In simple terms, normal rule of sale
Para mas madali matandaan yung designated formation nila, simply
follow the Debit and Credit rule per category kung pano mo sila
jinojournal entry:
DEBIT SIDE
Asset to be realized: eto yung total amount of NCA na nakalitaw sa
FS, hence debit side siya ilalagay
Asset acquired: asset na nabili or bagong recognized lang, edi debit
side
Liabilities Liquidated: asset na nasettle na, therefore debit for
derecognition
Liabilities not liquidated: a theoretical loss, kaya under debit side
(ewan eme ko lang)
CREDIT SIDE
Asset realized: disposition ng asset, edi credit for derecognition
Asset not realized: THEORETICAL gain, parang unrealized gain siya.
Therefore, debit side. eme ko lang din)
Liabilities to be liquidate: Total liabilities na nakalitaw sa FS, hence
normal credit balance
Liabilities assumed: bagong recognized or assumed na liability,
hence credit din
Side Note:
1. when computing for ending cash balance, simply to the accounting
formula to squeeze
a) If yung given ng equity account stated as ending balance, simply
put the amount sa A = L + E
b) If yung given na equity account is stated as beginning balance,
yung net gain (loss) from liquidation is closed sa retained
earnings and therefore aadjust mo muna before isupply yung
accounting formula.
2. Asset not realized and liabilities not liquidated are included sa
computation for squeezing the cash balance.
3. Other way to compute Total free asset if di makuha ng maayos, is by
multiplying the recovery percentage sa unsecured w/o priority which it
make sense kasi nga yung total na mabibigay sa w/o priority is only up to
the extent lang naman ng NET free asset
And adding up lahat ng unsecured w/ priority kasi nga total free asset
hanap mo. Kumabaga, nag work back ka.
4. Other way to compute recovery percentage, is by dividing yung
recovered portion sa unsecured portion ng isang partially secured
liability.
Kasi nga, recovered portion resembles yung amount na magkano lang
yung nakuha or nabayaran from the ACTUAL unsecured portion.
