CORPORATE

LIQUIDATIO
N
STATEMENT OF AFFAIRS AND
STATEMENT OF REALIZATION
AND LIQUIDATION

PREPARED BY: JENIFER T. MALANA,CPA

LESSON
OUTLINE
• Measurement basis
• Preparation and Format of the
Statement of Affairs
• Estimated Amounts to be recovered by
each class of creditors
• Deficiency statement
• Statement of Realization and
Liquidation
 LESSON
OUTCOME
The learners are expected to be able to:
• Can identify enterprises suffering
financial difficulty
• Can discuss the different indicators of
financial difficulty
• Can prepare the statement of
realization and liquidation
WHY DOES
LIQUIDATION
Possible recourse of an insolvent
corporation:

HAPPEN? a. Liquidation
b. Reorganization
Most common reason:
INSOLVENCY Corporate Liquidation
Under Insolvency Act, is the termination of
insolvency may be either: business operation or
• Voluntary winding up of affair.

• Involuntary
HOW ARE “GOING CONCERN” assumption
ASSET AND only applies to entities that will

LIABILITIES
operate indefinitely in the future

MEASURED?
PFRS only applies to
going concern
entities.

For liquidation
entities , appropriate
measurement is
REALIZABLE VALUE Estimated selling price
Assets
less disposal costs

Liabilites Net settlement amount

FINANCIAL
REPORTS STATEMENT OF AFFAIRS
STATEMENT OF REALIZATION
AND LIQUIDATION

• show information on the

• shows the financial position of
progress of liquidation
liquidating entity
PURPOSE: process most especially when
• similar to SFP except all components
the winding up is entrusted to
are measured @ REALIZABLE VALUE
a receiver

Assets are classified:

• Assets pledge to fully secured
• Assets are classified as to be
creditors
realized, realized, acquired
• Assets pledge to partially secured
and not realized
creditors
COMPONE • Liabilities are classified as to
• Free Assets
NTS be liquidated, liquidated,
Liabilities are classified:
assumed and not liquidated
• Unsecured liabilities with priority
• Supplementary Expenses and
• Fully secured Liabilities
Income
• Partially secured creditors
UNSECURED
LIABILITIES WITH
PRIORITY
Although not secured, are manadated by law to
be paid first:
a. Administrative Expenses
b. Unpaid employee salaries and other benefits
c. Taxes and assessments
ESTIMATE
D
DEFICIEN
Difference Between restated

CY
assets and liabilities

If a deficiency exists, the claims of

unsecured creditors without
priority will not be paid in full
ILLUSTRATIO
N
The following data were taken from the statement of affairs of ABC
Company:

Assets BV FV Liabilitites BV FV
P95,00
Cash P6,000 P6,000 Accounts Payable
0
Accounts Wages Payable(all have
60,000 60,000 9,500
Receivable priority)
65,000
Inventories 90,000 Taxes payable 14,000

100,00 Notes payable (secured by 190,00

Land 80,000
0 receivables and inventory) 0
160,000 220,00
Building, net Interest on notes payable 5,000
0
Bonds payable (secured by 220,00
Equipment,net 100,000 20,000
land and building) 0
ILLUSTRATIO
N

REQUIREMENTS:
1.Compute for the estimated deficiency.
2.Compute for the amount of Free Assets
ILLUSTRATIO
N Cash

Accounts receivable
P6,000

60,000

Inventories 90,000

Land 100,000

Building (net) 220,000

Equipment (net) 20,000 470000

Accounts payable 95,000.00

Wages payable (all have priority) 9,500.00

Taxes payable 14,000.00

Notes payable (secured by receivables and inventory) 190,000.00

Interest on notes payable 5,000.00

Bonds payable (secured by land and building) 220,000.00

Interest on bonds payable 11,000.00 (544,500.00)

Estate Equity /(Deficiency) (74,500)

ILLUSTRATIOAssets pledge to Assets pledge to
N fully secured partially secured
Free
Assets
creditors creditors
Cash 6,000
Accounts receivable 60,000
Inventories 90,000
Land 100,000
89,000
Building (net) 220,000
Equipment (net) 20,000
Total 115,000
Unsecured with
(23,500)
priority
Net free assets 91,500
ESTIMATED RECOVERY
PERCENTAGE
FORMULA:

NET FREE ASSETS

Estimating recovery
percentage of
unc=secured =
TOTAL UNSECURED
creditors without
LIABILITIES w/out
liability
priority
ILLUSTRATIO
N
The following data were taken from the statement of affairs of ABC
Company:

BV FV Liabilitites BV FV
P95,00
Cash P6,000 P6,000 Accounts Payable
0
Accounts Wages Payable(all have
60,000 60,000 9,500
Receivable priority)
65,000
Inventories 90,000 Taxes payable 14,000

Notes payable (secured

190,00
Land 80,000 100,000 by receivables and
0
inventory)
160,000 Interest on notes
Building, net 220,000 5,000
payable
Bonds payable (secured
220,00
ILLUSTRATIO
N

REQUIREMENTS:
1.Compute for the estimated recover
percentage to unsecured creditors
2.Compute for amount to be paid to partially
secured creditors
ILLUSTRATIO
N

Net free assets 91,500

Estimated
recovery Unsecured 65.36%
percentage = liabilities
140,000.00
without
priority
REQUIREMENTS:
Compute for the estimated recover
percentage to unsecured creditors
ILLUSTRATIO
NRockee Corporation, a bio-tech firm, has found itself in financial difficulty and
may file for bankruptcy. Rockee's Statement of Affairs reflects the following
summary information:

Book value of assets P700,000

Net realizable value of assets 370,000

Secured claims 250,000

Unsecured claims with priority 30,000

Rockee owes Flint Corporation P9,000 secured by

inventory that is expected to realize P7,000. If Flint
received 8,500 in total for his claim, computefor the
estimated deficiency?
ILLUSTRATIO
N
Net realizable value of assets 370,000

Less: Secured claims 250,000

Unsecured claims with

30,000
priority
1,500
Estimated Net free asset 90,000
recovery =0.7
Divide: Est. Recov. % 0.75
percentag 5
2,000
e Unsecured Liabilities w/out
120,000
priority

Net free asset (90,000)

Rockee owes Flint Corporation P9,000Deficiency

Estimated secured by inventory
30,000 that is
expected to realize P7,000. If Flint received 8,500 in total for his
claim, computefor the estimated deficiency?
STATEMENT OF REALIZATION
AND LIQUIDATION
Shows the actual result of liquidation
process
Debits Credits

Assets to be realized Assets Realized

Assets acquired Assets not realized

Liabilities Liquidated Liabilities to be liquidated

Liabilities not Liquidated Liabilities assumred

Supplementary Exepenses Supplementary Income

WHY IS THERE A
SEPARATE ENTRY The difference between the total

FOR ASSETS debits and credits represents net

gain or loss
ACQUIRED AND
LIABILITIES
Reason:
ASSUMED?
HIGHLIGHT
RECEIVER/TRUSTEE
ACCOUNTABILITY of will record in his book
RECEIVER/TRUSTEE the transfer of
• Assets and liabilities are custody over assets
also presented at book and liabilities
value to highlight actuak
gains and losses
ILLUSTRATIO
N
Baboosh Corporation is undergoing liquidation. Revelant information as of January
1,2021 is shown below.:

Carrying Realizable Carrying Realizable

Assets Liabilities
amounts Values amounts Values

Accounts Payable 700,000 700,000

Cash 200,000 200,000
Salaries Payable 800,000 800,000
Accounts
500,000 450,000
receivable Note Payable 500,000 500,000

Loans Payable 750,000 750,000

Equipment-
600,000 150,000
net Total Liabilities 2,750,000 2,750,000

Land 1,000,000 1,300,000 Equity

Total Assets 2,300,000 2,100,000 Share Capital 1,000,000

Deficit (1,450,000)

Capital
(450,000)
Deficiency
ILLUSTRATIO
N
Bye- bye's Liquidation is entrusted to Hello, a receiver.
Information on January 1,2021:
a. Interest of 30,000 is expected to be paid on the loan
b. Liquidation costs of 180,000 are expected to be incurred

Information on transaction for the year ended Dec. 31,2021

a. 280,000 were collected on 400,000 accounts receivable.
b. The equipment was sold for 150,000, net of 40,000 disposal costs. The net proceeds
were used to fully settle the note payable . The creditor canceled the balance
c. The land was sold for 1,500,000. Diposal costs of 100,000 were incurred on the sale.
The net proceeds were used to fully settle the loan payable ,including he interest
d. Half of the accounts payable and one fourth of the salaries payable were settled
e. Liquidation costs of 240,000 were paid. Additional 120,000 are expected to be incurred
in 20x2
ILLUSTRATIO
N

REQUIREMENTS:
1.Compute for the estate deficit
2.Prepare the statement of Realization
THANK
YOU!