Question

What does fresh start accounting mean? When it is utilized, how are a company's assets and its liabilities reported? What do you know about statement of realization and liquidation? What is the difference between estate and trust? Is there a different treatment taxation wise? What do you know about probate law? What are its objectives? Who pays gift tax? If a person dies without leaving a valid will, how is the distribution of the property regulated?

Answer 1

• FRESH START ACCOUNTING MEANING:--

Successor Company apply the provisions of fresh start accounting to emerge it predecessor company form bankruptcy or insolvent company.Under this accounting Successor company is able to restructure its Balance sheet and measure its assets at fair market value.

• Utilization:--

Some criteria needs to be satisfied by the company than only it can use Fresh Start Accounting. This criteria are as mention below:

1. The Company must be insolvent in terms of its Balance Sheet That means the value of reorganize assets of the company should be less then Its post Liabilities.
2. The holders of the voting shares immediately before confirmation of the plan receive less than 50 percent of the voting shares of the emerging entity.

• Reporting:-

Fresh start financial reporting reflects a new entity with no beginning retained earnings or deficit.In addition to resetting the value of assets and liabilities on the balance sheet at fair value.

The balance sheet should shows the changes in the debt and equity structure as a result of the reorganization.Also, Fresh start accounting needs some disclosures, including:

1. Adjustments to the historical carrying values of assets and liabilities;
2. The amount of debt outweigh; and
3. Key variants for finding the reorganization value.

• Statement of Realization and Liquidation:

The Statement of Realization and Liquidation includes the same information as the regular financial records apart from income statement accounts. . The Statement of Realization and Liquidation presents the information in a different format. The economic substance of the events included in the Statement of Realization and Liquidation and in the regular financial records is the same .Basically it is a document that highlighting number of shares held by a firm and the number it would need to issue to generate income in time of a financial crisis.

• Difference Between trust & Estate:

Trust is a legal agreement in which Person(donor or Grantor) agreed to donate its assets to trust or trustee with some good human objectives after his death. However In Estate, Person has made its will to decide who will be the owner of his property after his death or if Person not made is will then the Law of pertain state will decide the successor of his property.

• Taxation:

Estate taxes are levied on the net value of property owned by a deceased person on the date of their death. In contrast, inheritance taxes are levied on the recipients of the property. Usually, there are exemptions upon the estate being transferred to the surviving spouse.And on Trust taxes are levied as per the rate specified by ministry.

• Probate Law:

Probate is the judicial process whereby a will is "proved" in a court of law and accepted as a valid public document that is the true last witness of the deceased, or whereby the estate is settled according to the laws of intestacy in the state of residence of the deceased at time of death in the absence of a legal will.

• Objective of Probate Law:

The main common objective of implementing the probate law is to control the forgery crime related to property and Also in the absence of will of Deceased then proper allocation of deceased property should be done among his/her spouse or successors.

• Gift Tax:

It is the giver of the gift who is required to pay the gift tax.

• Person Dies Without Valid Will:

If a Person dies without making his valid will then his property should be distributed among his successor or spouse as per probate law of the estate.