FASB - Liquidation basis of accounting required 

April 24:   The FASB issued an Accounting Standards Update (ASU) that requires an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent, as defined in the ASU.

The ASU’s objective is to eliminate diverse practices by providing guidance about when and how to apply the model. The guidance applies to all entities except for investment companies regulated under the Investment Company Act of 1940.


Applying the liquidation basis of accounting requires an entity to measure its assets at the estimated amount of cash or other consideration it expects to collect and its liabilities at the amount otherwise prescribed under U.S. GAAP.


Liquidation is considered imminent under the ASU when there is a remote likelihood that the entity will return from liquidation and either of the following occurs:


  • A plan for liquidation has been approved by the persons with the authority to make the plan effective, and the likelihood is remote that the execution of the plan will be blocked by other parties; or
  • A plan for liquidation is imposed by other forces (e.g., involuntary bankruptcy).

The ASU is effective for both public and nonpublic entities (including employee benefit plans) that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods within those annual periods.


Read an April 2013 report [PDF 74 KB] prepared by KPMG LLP: Defining Issues: FASB
Establishes Liquidation Accounting Model




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