Basis of Valuations in Statement of Affairs
The basis for the estimate of valuations is the same as in the case of bankruptcy proceedings where appraisers are appointed to determine the value of properties. Here, however, the matter is not under court control and the best appraisal possible must be made by the parties concerned, although if proceedings have progressed to the point where the appraisers’ report is available, these values may be incorporated. The order of marshalling the assets and liabilities in the statement is not standardized although it would seem best to follow the customary balance sheet order for the assets, running perhaps from the most liquid to the fixed. With the liabilities, those entirely unsecured may be shown first, followed by the partly secured, the fully secured, and the preferred creditors. A comparison of the total values expected to be realized from the sale of the assets with the total of the unsecured creditors gives some indication of the share which each creditor in the unsecured class may expect to receive. The student is referred to the type solution and form shown on pages 635-638.
Statement of Affairs
| Book Values | Assets | Items | Expected to Realize | Expect’d Loss on Realizat’n |
|---|---|---|---|---|
| Cash | ||||
| Notes Receivable (see Schedule 1) | ||||
| Accounts Receivable (see Schedule 2) | ||||
| Good | $..... | |||
| Doubtful | ..... | |||
| Bad | ..... | |||
| Merchandise | ||||
| Securities on Hand (see Schedule 3) | ||||
| Securities Pledged with Creditors: | ||||
| Partly Secured | $..... | |||
| Fully Secured | ..... | |||
| Deducted contra | ||||
| Excess of Pledged Securities over | ||||
| Claims of Creditors Fully | ||||
| Secured (see contra) | ||||
| Other Properties (see Schedule 4) | ||||
| Total Unpledged Assets | $ . . . . . . | |||
| Less Preferential Claims (see contra) | . . . . . . | |||
| Net Free Assets for Unsecured Claims | $ . . . . . . | |||
| Deficiency (see Deficiency Account) | ||||
| Book Values | Liabilities | Items | Expected to Rank |
|---|---|---|---|
| Creditors Unsecured (see Schedule 5) | $. . . . . . | ||
| Creditors Partly Secured (see Schedule 6) | $. . . . . . | ||
| Less Securities Held (see contra) | . . . . . . | ||
| Portion Unsecured | . . . . . . | ||
| Creditors Fully Secured (see Schedule 7) | $. . . . . . | ||
| Less Securities Held | . . . . . . | ||
| Excess Carried contra | $. . . . . . | ||
| Contingent Liabilities (see Schedule 8) | |||
| Preferential Creditors (see Schedule 9): | |||
| Deducted contra | . . . . . . | ||
| Capital | |||
| Surplus | |||
Deficiency Account
It is customary to support the statement of affairs by a deficiency account, which bears somewhat the same relation to the statement of affairs that the profit and loss account does to the balance sheet, i.e., it is a statement of the expected losses incurred upon realization of the assets and must prove against the losses or deficiency as shown by the statement of affairs. Sometimes on the asset side of the statement of affairs a third column is shown in which is indicated in detail the expected loss on realization for each asset. Where this is done the information which makes up the deficiency account is readily available. On the debit side of the deficiency account appears such items as losses on trading, shrinkages in value of the assets, and, if a partnership, withdrawals of capital. On the credit side appear the capital as shown by the books. The difference between the two sides is the amount of deficiency as shown by the statement of affairs. It may sometimes happen that the assets will realize more than enough to meet the claims of all creditors, leaving a remainder to be distributed among the owners. Where such is the case the deficiency account, instead of being technically described as such, is sometimes called an impairment of capital account—carrying, however, essentially the same information. The balance of the account is on the opposite side and indicates the present capital as impaired by the losses incurred. The skeleton form on page 633 and that given below show the way in which the various items may be presented.
Deficiency Account
| Detailed Shrinkage in | Appreciation in Values as | ||
| Values as per Statement | per Statement of Affairs | ||
| of Affairs | Capital | ||
| (Net Impairment of Capital) | Surplus | ||
| Net Deficiency as per | |||
| Statement of Affairs | |||
Illustration of Statement of Affairs and Deficiency Account