break up basis

Look at a SoFP in any set of accounts prepared on a going concern basis - think about what amounts and their presentation means. For example: - Plant and equipment - assets that will be used up in the business over coming years - carried at depreciated cost - Inventory - carried at lower of cost and NRV - Long-term borrowings - to be repaid after 12 months. These are just 3 things. Now think, if the company ceases to trade (so the company will be "broken up") - what happens to these amounts and their presentation? Basically, because the assets will be recovered/sold to discharge liabilities (shareholders will probably get nothing): - All non-current assets should now be carried at a net recoverable amount - and presented as current assets - Inventory should be written down to what it can be sold for - not in the ordinary course of business but at "closing down" prices (for example) - All long-term borrowings must be reclassified as current liabilities. It is likely that there will be additional liabilities to be provided for in the financial statements when drawn up on break-up/liquidation basis - e.g. provisions for making redundant the entire workforce and the costs of liquidation.