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Liquidation Basis of Accounting Amendments in Effect for 2014 Year Ends

May 15, 2015

Jessie Kanter, CPA

During 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2013-07, Liquidation Basis of Accounting. Prior to this update, there was minimal guidance on how and when to apply the liquidation basis of accounting. This update is meant to clarify when to use the liquidation basis and provides principles for the recognition and measurement of assets and liabilities when using the liquidation basis of accounting for financial reporting.

Under the amended guidance, an entity is required to prepare its financial statements using the liquidation basis when liquidation is imminent. Under the update, liquidation is imminent when the likelihood is remote that an entity will return from liquidation, and either a plan for liquidation is approved and the likelihood is remote that the execution of the liquidation plan will be blocked by other parties, or a plan for liquidation is imposed by other forces (such as involuntary bankruptcy).

When financial statements are prepared under the liquidation basis, the entity would measure its assets at the amount of expected cash proceeds from the liquidation. The entity would also include in its assets any items it had not previously recognized under U.S. generally accepted accounting principles (GAAP), but expects to either sell in liquidation or use to settle its obligations (such as certain intangible assets). The entity would continue to recognize and measure its liabilities in accordance with GAAP. An entity should not anticipate that it would be legally released from any obligations upon liquidation when reporting liabilities. In addition, the entity would accrue, and present separately, costs the entity expects to incur and income it expects to earn during the expected duration of the liquidation, including costs associated with the sale or settlement of assets and liabilities.

The amendments also require disclosure regarding the entity’s plan for liquidation, the methods and assumptions used to measure assets and liabilities, a description of the costs and income accrued, and the expected duration of the liquidation process.

The amendments in this update are effective for annual reporting periods beginning after December 15, 2013. Entities would apply the requirements prospectively from the day that liquidation becomes imminent. Entities currently using the liquidation basis under prior guidance are not required to apply the amended guidance and should continue to apply the guidance under the topics they are currently following until liquidation is complete (such as terminating employee benefit plans).

For more information, please contact Jessie Kanter at


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