reorganization value

Broad Transactions2

1. 852-10Overall852 Reorganizations

   ASC 852-10 governs financial reporting by entities that have filed a Chapter 11 petition and expect to reorganize as going concerns, plus their reporting upon emergence under a confirmed plan. During the case, GAAP continues to apply but the statements must separate reorganization-related transactions from ongoing operations: prepetition liabilities subject to compromise are segregated on the balance sheet at expected allowed amounts, and reorganization items are shown separately in the income statement and cash flow statement. On emergence, an entity adopts fresh-start reporting only if reorganization value is less than postpetition liabilities plus allowed claims and pre-confirmation voting shareholders receive less than 50% of the emerging entity's voting shares.

2. 852-20Quasi-Reorganizations852 Reorganizations

   ASC 852-20 governs quasi-reorganizations ("readjustments"), a corporate readjustment procedure in which a corporation—without forming a new entity or entering court proceedings—restates its balance sheet to fair value, eliminates an accumulated deficit, and relieves current or future income of charges by charging them to additional paid-in capital. This is an express exception to the general rule in 852-20-25-2 that additional paid-in capital may not be used to relieve the income account. The Subtopic prescribes the conditions for the readjustment (full disclosure to and formal consent of shareholders, fair asset carrying amounts), the ordering of write-offs (retained earnings first, then APIC), and the post-readjustment dating of a new retained earnings account.