Question

What is the role of the accountant during the liquidation process?

Answer 1

Liquidation shall be opened on the date of adoption by the shareholders a resolution on dissolving the company or incidence of another reason for liquidation. When putting company into liquidation occurs as a result of Shareholders resolution, then the date of opening liquidation would be the date indicated in this board resolution. Shareholders should indicate in their resolution a person who will act as liquidator.

As at the preceding the dates of putting company into liquidation accountants close accounting books and prepare financial statement. The inventory procedure of company assets is necessary as at the preceding the date of putting company into liquidation. Assets and liabilities shall be valuated at net realizable selling prices, not higher than acquisition prices or costs of manufacture, minus accumulated depreciation write-offs, as well as impairment write-offs. The company should also establish a reserve for anticipated additional costs and losses resulting from discontinuance or for incapability to continue its operations. The opening of liquidation during accounting year does not result in ending of the accounting year. The liquidation proceedings will end the fiscal year, resulting in obligation of submitting the Corporation income tax annual declaration and settlement of tax liabilities.

ROLES and PROCESSES :

When an insolvent company is to be liquidated, the provisions established in the Bankruptcy reform act regulate the process. To begin, the court appoints an interim trustee to oversee the company and its liquidation. This individual is charged with preserving the assets and preventing loss of the estate. Thus, creditors are protected from any detrimental actions that management, the ownership, or any of the other creditors might undertake. The interim trustee (as well as the permanent trustee, if the creditors subsequently select one) must perform a number of tasks shortly after being appointed. These functions include (but are not limited to):

• Changing locks and moving assets and records to locations the trustee controls
• Posting notices that the U.S. trustee now possesses all business assets and that tapering with or removing any contents is a violation of federal law.
• Compiling all financial records and placing them in the custody of the trustee’s own accountant
• Obtaining possession of any corporate records including minute books and other official documents.

The court then calls for a meeting of all creditors who have appropriately filed a proof of claim against the debtor. This group may choose to elect a permanent trustee to replace the person temporarily appointed by the court. A majority of the creditors must agree on the new choice. If they cannot agree, the temp is retained.

The trustee then is responsible for recovering all property belonging to the insolvent company, preserving the estate form any further deterioration, liquidating noncash assets, and making distributions to the proper claimants. In addition the trustee may need to continue to run operations of the company. This means that this individual now has a wide array of authority over operations. In order to accomplish all of these tasks, the trustee will need to work along side a plethora of attorneys and accountants.

TAX:

I am going to assume that when you say ‘firms’ you are implying partnerships. The major components of a partnership liquidation are the distributions and related partner interest. The process that is applied is referred to as the proportionate liquidation of distributions. In this process a single distribution or a series of distributions result in the termination of the partner’s entire interest in the partnership. The partnership itself does not typically recognize either gain or loss on a proportionate liquidating distribution (but it is not unheard of).