Question

select any topic related to financial accounting that interests you. You may also choose a topic you are familiar with professionally or one that is intereresting to you . Examples include partnerships vs. corporations, accounting for inventory valuation, types of legal business entities, accounting for accounts receivable and uncollectible accounts, fair value accounting, IFRS, Sarbanes Oxley, ethics in accounting, the history and purpose of the cash flow statement, accounting for long-term liabiliites, comparative evaluation of different depreciation methods, are just a few of the possible choices. write a essay

Answer 1

Topic : Insolvency in companies

It is an important topic in financial accounting as this insolvency has a huge impact on the company.

When companies are not able to clear all its liabilities or pay the debts, sooner or later it is on the path to become insolvent.

In such circumstances, legal actions are taken against the company.

In such a situation, company has two ways to deal with this. It can either sell all its assets and the amount it receives and the amount reserved in cash reserves, that is the total amount available is used to clear off all the debts of the company.

If after clearing the liabilities, still some amount us left then that should be distributed among the owners as per their share in the company.

And after this, the company is closed as it turned to be insolvent.

The other way is that when a owner found its company on the verge of being insolvent, but can also see that if certain plans are formulated there is a chance that company could be saved from being insolvent.

In such case, the director self employees a administrator, who would be handling the company fully, and see personally what could be done to improve the condition of the company. He helds meeting, with officials, with shareholders, creditors and others and try to analyse the situation.

If he found in the given time that company can regain its position, it suggests ways to the director of the company, the way they can act to save the company.

If he founds its not possible to save the company from being insolvent, he suggest ways in which how the creditors can be mostly benefitted.

Thus, this way the appointed administrator uses his knowledge to analyse the situation and suggest the company directors.

Later all depends on directors how they take the decision on what has to be done.

So, here we saw how the insolvency in companies is dealt and what are the consequences of this.