# ASC 205-30-55: Presentation of Financial Statements — Liquidation Basis of Accounting — 55 Implementation Guidance and Illustrations

Source: FASB Accounting Standards Codification, Basic View

[Read online](https://asc.understandingaccounting.org/asc/205/30/#55-implementation-guidance-and-illustrations)

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## ASC 205-30-55: 55 Implementation Guidance and Illustrations

[Read section](https://asc.understandingaccounting.org/asc/205/30/#55-implementation-guidance-and-illustrations)

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#### Illustrations

##### [205-30-55-1](https://asc.understandingaccounting.org/asc/205/30/#205-30-55-1)

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The following Examples illustrate how an entity would determine when it should apply the liquidation basis of accounting. The Examples are not intended to capture every scenario under which an entity might have to apply the liquidation basis of accounting.

##### [205-30-55-2](https://asc.understandingaccounting.org/asc/205/30/#205-30-55-2)

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Entity A is a manufacturer of goods. In 20X3, Entity A began experiencing financial difficulty because of declining market demand for its goods. On September 19, 20X3, Entity A's board of directors approved a plan for [liquidation](https://asc.understandingaccounting.org/glossary/l/#liquidation "The process by which an entity converts its assets to cash or other assets and settles its obligations with creditors in anticipation of the entity ceasing all activities. Upon cessation of the entity's activities, any remaining cash or other assets are distributed to the entity's investors or other claimants (albeit sometimes indirectly). Liquidation may be compulsory or voluntary. Dissolution of an entity as a result of that entity being acquired by another entity or merged into another entity in its entirety and with the expectation of continuing its business does not qualify as liquidation."). The board of directors had the authority to make the plan effective. There were no other parties that could block the execution of the plan, and the likelihood that the entity would return from liquidation was remote. Entity A should begin applying the liquidation basis of accounting as of September 19, 20X3, which is the date that Entity A's board of directors approved the plan for liquidation.

##### [205-30-55-3](https://asc.understandingaccounting.org/asc/205/30/#205-30-55-3)

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The governing documents from Entity B's inception specified that its contractual life would end in Year 10. On March 11 of Year 6, Entity B's board of directors determined that the entity would not be able to meet its debt obligations and voted to begin liquidating the entity earlier than planned. Entity B required approval from Entity C, a third party, to make its plan of liquidation effective. Entity B obtained approval from Entity C on April 10 of Year 6. No other parties could block the execution of the plan of liquidation, and the likelihood that Entity B would return from liquidation was remote. Under the plan of liquidation, Entity B anticipated that it would not have sufficient time to sell its assets in exchange for consideration that would approximate the [fair value](https://asc.understandingaccounting.org/glossary/f/#fair-value "The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.") of those assets. Entity B should begin preparing its financial statements using the liquidation basis of accounting as of April 10 of Year 6, which is the date that the entity had obtained all of the approvals required to make its plan of liquidation effective.