F 10 - Liquidation Basis of Accounting Flashcards
What are the disclosures required for a company that is applying the liquidation basis of accounting.
FAR 10-49
- A statement that the financial statements are prepared using the liquidation basis of accounting.
- The plan for liquidation.
- Significant assumptions and methods used to measure assets and liabilities.
- The expected time frame for completing the liquidation process.
- The type and amount of costs and income accrued, as well as the period over which these costs and revenues are expected to occur.
Describe the financial statements required under the liquidation basis of accounting.
FAR 10-48
An entity preparing financial statements under the liquidation basis of accounting must present both a statement of Net Asset in Liquidation and a statement of Changes in Net Assets in Liquidation.
For the latter, the initial statement will present only changes in net assets that occurred during the frame since imminent liquidation was established.
Describe the proper accounting when the liquidation basis is initially applied.
FAR 10-45
On the effective date that the liquidation basis must be applied,a cumulative-effect adjustment is required to account for any differences between existing measurements and the measurements required under the liquidation basis. At each subsequent reporting date assets, liabilities, and accruals must be measured.
Describe the measurement basis for assets and liabilities under the liquidation basis of accounting.
FAR 10-46
Assets must be measured and presented at the amount of cash proceeds expected from liquidation. Any items that were not previously recognised under U.S. GAAP (e.g.trade marks and patents) but are expected to be sold in liquidation or used in setting liabilities should be recognised.
Liabilities should be measured and recognised according to the U.S. GAAP that otherwise applies to them. Adjustments can be made to reflect changes in assumptions ( such as when payments are expected to be made) stemming from the decision to liquidate.
Describe the proper accounting when the liquidation basis is initially applies.
FAR 10-45
On the effective date that the liquidation basis must be applied, a cumulative-effect adjustment is required to account for any differences between existing measurements and the measurements required under the liquidation basis. At each subsequent reporting date, asset,liabilities, and accrual must be remeasured.
Describe the accounting for costs expected to be incurred during and at the end of the liquidation process.
FAR 10-47
Costs that are expected to be incurred during and at the end of the liquidation process must be accrued, as well as income expected to be earned during the period of time the entity is in liquidation. All amounts must be presented separately and at non discount values.
What are the criteria for “imminent liquidation?”
FAR 10-44
In order for liquidation to qualify as “imminent” the following criteria must be met:
The likelihood of the entity returning from liquidation is remote and
Either
a liquidation plan is approved by the individual(s) with the authority to make the plan effective, and the likelihood id remote that the plan’s execution will be blocked by other parties; or
a liquidation plan is imposed by other forces such as an involuntary bankruptcy.
When should an entity prepare its financial statements using the liquidation basis of accounting?
FAR 10-43
When liquidation is imminent, an entity must prepare its financial statements using the liquidation basis of accounting.
Generally, a company is the liquidation when it is converting its assets to cash or other assets and is setting its obligation with creditors with the intent of ceasing is activities.
Financial statements must be prepared using a basis of accounting that helps financial statement users understand how much the organisation will have available to distribute to investors after disposing of its assets ans setting its obligations.
