Wiley GAAP: Financial Statement Disclosure Manual. Joanne M. Flood
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Practice Pointer: Notice that in the example above, the entity initially measures its assets to reflect the amount it expects to receive in cash or other consideration. The assets include items previously unrecognized, like trademarks and patents that the company expects to sell. These are valued in the Statement of Net Assets at the amounts of proceeds the entity expects to realize. Assets are reported gross. The costs to dispose of the assets are presented separately in estimated costs to liquidate. The statement is unclassified and presents the total net assets in liquidation.
Example 2.11: Statement of Changes in Net Assets in Liquidation
XYZ Company Statement of Changes in Net Assets in Liquidation for the Period June 1, 20X1 through June 30, 20X1
| Net assets as of June 1, under liquidation basis | $18,574 |
| Adjustment for accrued liquidation costs | (8,795) |
| Net assets adjusted as of June 1, 20X1 under liquidation of accounting | 9,779 |
| Net operations | 5,187 |
| Liquidation basis of accounting remeasurement loss on accrued costs to dispose of assets and liabilities | (668) |
| Subsequent period remeasurement adjustment on assets | 2,927 |
| Liquidation basis of accounting remeasurement loss on items previously not recognized | (527) |
| Net assets as of June 30, 20X1 under liquidation basis | $16,030 |
Example 2.12: Note—Liquidation Is Imminent
Liquidation of Company As a result of poor performance and lack of new capital contributions, the Company's Board of Directors concluded in a meeting held September 18, 20X0 that the implementation of a Formal Plan of Complete Dissolution and Liquidation is in the best interest of the Company and its shareholders. Subsequently, the Plan was submitted to ABC's shareholders as of October 28, 20X0 for approval at the Company's annual meeting held on December 4, 20X0. The Plan of Complete Dissolution and Liquidation was approved by the shareholders at the annual meeting.
Plan of Liquidation As a result of the adoption of the Plan of Complete Dissolution and Liquidation, ABC's activities are now limited to: selling, collecting, or otherwise realizing the value of its remaining assets; making tax and other regulatory filings; winding down the Company's remaining business activities; paying (or adequately providing for the payment) of valid creditor claims and obligations; and making liquidation distributions to ABC's shareholders.
Currently, ABC's assets consist primarily of cash, recoverable income taxes, and notes receivable. The Company believes that its current cash position and cash generated from the collection of its remaining assets will be sufficient to meet its current obligations, to fund ABC's wind‐down operations, and allow the Company to pay liquidation distributions (see Note X). The Company expects to complete its liquidation over the ensuing 6 to 12 months.
Financial Statement Presentation In preparing these financial statements, the Company has evaluated events and transactions for potential recognition through March 2, 20X1, the date the financial statements were issued.
The consolidated financial statements include the accounts of ABC, Inc. and Forest Commerce Center, Inc., the Company's real estate subsidiary whose assets were sold at March 31, 20X0. Upon consolidation, all intercompany accounts and transactions are eliminated.
The Company considers cash and other highly liquid investments, with less than 90‐day maturities, as cash and cash equivalents. Cash and cash equivalents are stated at cost, which approximates liquidation value. The majority of cash and cash equivalents were federally insured.
Adoption of the Liquidation Basis of Accounting As a result of the Company's shareholders’ approval of the Plan of Complete Dissolution, the Company adopted the liquidation basis of accounting effective December 5, 20X1. This basis of accounting is considered appropriate when liquidation of a company is imminent. Under this basis of accounting, assets are valued at the expected cash proceeds from liquidation, and liabilities are stated in accordance with GAAP that otherwise applies. The entity is also required to accrue and separately present costs that it expects to incur and the income it expects to earn during the expected duration of the liquidation. The conversion from the going concern to liquidation basis of accounting required management to make significant estimates and judgments to record assets and liabilities. These estimates are subject to change based upon the timing of potential sales and further deterioration of the market.
The Company will continue to incur operating costs and receive income on its investments and cash and cash equivalents throughout the liquidation period. On a regular basis management evaluates assumptions, judgments, and estimates that can have a significant impact on reported assets in liquidation based on the most recent information available to us, and when necessary makes changes accordingly. Actual costs and income may differ from estimates, which might reduce assets available in liquidation to be ultimately distributed to shareholders.
Accrued Liquidation Costs The Company is required to make significant estimates and exercise judgment in determining accrued liquidation costs. The Company reviewed all operating expenses and contractual commitments such as payroll and related expenses, lease termination costs, professional fees, and other outside services to determine the estimated costs to be incurred during the liquidation period. Accordingly, estimated expenses anticipated to occur from December 5, 20X0 through final liquidation were accrued in the consolidated statement of net assets as of December 31, 20X0 and March 31, 20X1 prepared on a liquidation basis.
The accrued costs expected to be incurred in liquidation and recorded payments, since March 31, 20X0 made related to the accrued liquidation costs are as follows:
| Accrued Liquidation Costs | As Booked March 31, 20X0 | Adjustments to Reserve | Payments | Balance at December 31, 20X0 |
| Payroll related costs | $ 777 | $0 | $ (363) | $ 192 |
| Contractual commitments | 52 | 0 | (52) | 0 |
| Professional services | 144 | 0 | (1) | 143 |
| Insurance, taxes, and other | 1,016 | 148 |
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