Difference between liquidation and re-organization. Liquidation: Liquidation is a process whereby the company is dissolved and in order to pay off its existing liabilities the assets are set to be sold for their salvage values. The going concern concept ceases to exist and the operations of the company comes to an end. The debtors are no more participants in the business and the creditors have authority to sell off the company’s assets to settle its obligations. The situation of liquidation is an ultimate situation as to when the company is completely unable to smoothly function in terms of its operations, revenue generation, and fulfilling of obligations and settlement is devised to completely cease everything. Re-organization: Re-organization plan of the business is being devised by the relevant authorities of the business in co-ordination with the creditors of the business. It tends to provide a phase to the business that it may re-organize its activities in certain manner that the deviations in the earlier business model may be fixed. The unnecessary business activities may be completely ceased so as to indulge into the core business activities with all of its available resources.

Question

Want to see the full answer?

Answer 1

Question

Chapter 30, Problem 5CQ

Summary Introduction

To explain: Difference between liquidation and re-organization.

Liquidation:

Liquidation is a process whereby the company is dissolved and in order to pay off its existing liabilities the assets are set to be sold for their salvage values. The going concern concept ceases to exist and the operations of the company comes to an end. The debtors are no more participants in the business and the creditors have authority to sell off the company’s assets to settle its obligations.

The situation of liquidation is an ultimate situation as to when the company is completely unable to smoothly function in terms of its operations, revenue generation, and fulfilling of obligations and settlement is devised to completely cease everything.

Re-organization:

Re-organization plan of the business is being devised by the relevant authorities of the business in co-ordination with the creditors of the business. It tends to provide a phase to the business that it may re-organize its activities in certain manner that the deviations in the earlier business model may be fixed.

The unnecessary business activities may be completely ceased so as to indulge into the core business activities with all of its available resources.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Scenario one: Under what circumstances would it be appropriate for a firm to use different cost of capital for its different operating divisions? If the overall firm WACC was used as the hurdle rate for all divisions, would the riskier division or the more conservative divisions tend to get most of the investment projects? Why? If you were to try to estimate the appropriate cost of capital for different divisions, what problems might you encounter? What are two techniques you could use to develop a rough estimate for each division’s cost of capital?

Scenario three: If a portfolio has a positive investment in every asset, can the expected return on a portfolio be greater than that of every asset in the portfolio? Can it be less than that of every asset in the portfolio? If you answer yes to one of both of these questions, explain and give an example for your answer(s). Please Provide a Reference

Hello expert Give the answer please general accounting