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A financially distressed
company is one:
1. Whose ability to continue existence is
doubtful;
2. That is in the process of reorganization;
3. That is a reorganized company;
4. That contemplates or plans liquidation; or
5. That is under liquidation.
QUASIREORGANIZATION
Quasi-reorganization is a
permissive but not mandatory
procedure under which a financially
distressed entity restates its
accounts and establishes a fresh
start in accounting sense.
ILLUSTRATION 1:
A TROUBLED DEBT
RESTRUCTURING MAY BE IN
THE FORM OF:
(1)ASSET SWAP
If an asset swap, the debtor transfers a
noncash asset (real estate or other asset) to
the creditor in settlement of the liability.
ILLUSTRATION 2: CASE 1
CASE 2
ILLUSTRATION 3
STATEMENT OF AFFAIRS
The statement of affairs is in effect a statement of
position from a quitting concern or a nongoing concern point of view. The assets are
reported at their estimated realizable value
instead of book value.
The assets are not classified as current or
noncurrent, but reported as either pledged with
certain creditors or free and thus available to
general creditors.
DEFICIENCY STATEMENT
A deficiency statement is usually
prepared to accompany the statement of
affairs. It indicates the source of the
deficiency to unsecured creditors
ILLUSTRATION 5