For a reporting entity that has adopted the liquidation basis of accounting, the financial statements consist of a statement of net assets in liquidation and a statement of changes in net assets in liquidation.

Details of equity accounts ordinarily are not shown on the statement of net assets in liquidation. However, presentation of the amounts expected to be distributed to different shareholder classes may be appropriate when a reporting entity has a complex capital structure or noncontrolling interests exist. In general, the statement of net assets in liquidation, which replaces the balance sheet, is presented in an unclassified format with the excess of assets over liabilities shown as a single amount designated as “net assets in liquidation” (or vice versa if liabilities exceed assets). Although not addressed in ASC 205-30, when a reporting entity's liabilities exceed its assets in liquidation, we believe it is appropriate for the statements to be titled "statement of net liabilities in liquidation" and "statement of changes in net liabilities in liquidation."

Example financial statements for a reporting entity that has adopted the liquidation basis of accounting are provided in Figure BLG 6-4.

Figure BLG 6-4
Example financial statements – liquidation basis of accounting

¹ Represents the expected disposal costs of the reporting entity’s assets and estimated future other income and costs through the end of the liquidation process.

² Represents the adjusted net assets balance as of the date of the adoption of the liquidation basis; adjustments to apply the liquidation basis are not presented within the statement of changes in net assets in liquidation.

³ Represents the changes in estimates of assets, liabilities, and the accruals for disposal or other costs or income to reflect the actual or estimated change in carrying values during the period since liquidation became imminent.

ASC 205 does not provide specific guidance on whether financial statements should be presented for the period of time that precedes the determination that liquidation is imminent. However, consideration should be given to any regulatory requirements applicable to the reporting entity.

ASC 205-30-45-2 clarifies that the statement of changes in net assets in liquidation should only present those changes that occurred during the period since liquidation became imminent. Accordingly, the accounting adjustments to apply the liquidation basis should not be reflected in the initial statement of changes in net assets in liquidation. If a reporting entity presents financial statements for the period prior to liquidation becoming imminent (i.e., when it is still a going concern), the adjustments to adopt the liquidation basis of accounting should not be recognized in those financial statements since the adjustments are not related to the going concern period. While not recognized, generally it would be appropriate for a reporting entity to disclose the changes resulting from adopting the liquidation basis of accounting in the notes to the financial statements that include the date liquidation became imminent.

When financial statements for periods prior to adopting the liquidation basis are presented, the statement of net assets in liquidation and statement of changes in net assets in liquidation should be presented using a black line to denote the different bases of accounting. BLG 4.5.1 discusses the black-line presentation of financial statements in the context of entities emerging from bankruptcy. This concept is the same for entities adopting the liquidation basis of accounting. Alternatively, a reporting entity in liquidation could present its financial statements prepared while in liquidation on the liquidation basis of accounting separate from its financial statements prepared on a going concern basis prior to the liquidation basis of accounting being adopted.