The theory underlying the account was that it represented the trustee, who was to be charged with all the assets turned over to him and credited with the liabilities assumed. During the process of realization and liquidation he was to be credited in the same account with the assets at the amount realized therefrom, and debited with the liabilities as liquidated. Under this theory, strangely enough, the account was charged also with the expenses incurred by the trustee and credited with any income items received during his trusteeship. The balance of the account was the profit or loss on the realization and liquidation transactions. This theory of the realization and liquidation account as an account actually opened on the books has given place to a second theory, though the account itself as set up for showing solutions to problems set in certified public accountants’ examinations is still sometimes constructed according to this first theory.
The advocates of the second theory maintain that the realization and liquidation account represents the trustee’s report to the court, accounting for the charges and credits therein on that basis. The nature of such a report has been explained earlier in the chapter, from which it is seen that the formal realization and liquidation account as usually set up cannot represent nor take the place of the trustee’s report to the court.
Under a third theory the realization and liquidation account is looked upon simply as a condensed summary of the trustee’s activities analyzed into sections, the purpose of which is to present all the information needed for almost any report which the trustee may have to make. The theory of its debits and credits is not so important here and in some cases may not apply, the effort being simply to arrange the data in such fashion that a full accounting can be given for all the properties turned over to the trustee and all the liabilities assumed by him, the whole being supported by a statement of the trustee’s operations. This information is set up in account form and brought together in one account supplementary to which there must be carried also a summary of the trustee’s cash transactions. The information as given in these two accounts provides the data for any reports which the trustee may have to make. The two forms are shown in skeleton form just below:
| Realization and Liquidation Statement— Usual Form | |||
| Assets to be Realized | Liabilities to be Liquidated | ||
| (In detail) | (In detail) | ||
| New Assets Acquired | New Liabilities Assumed | ||
| (In detail) | (In detail) | ||
| Liabilities Liquidated | Assets Realized | ||
| (In detail) | (In detail) | ||
| Supplementary Charges | Supplementary Credits | ||
| (In detail) | (In detail) | ||
| Liabilities Not Liquidated | Assets Not Realized | ||
| (In detail) | (In detail) | ||
| Gain on Realization | Loss on Realization | ||
| Assets to be Realized | Liabilities to be Liquidated | ||
| (Balance brought down) | (Balance brought down) | ||
| Realization and Liquidation Statement— Improved Form | |||
| Assets Taken Over | Liabilities Assumed | ||
| (Original and after-acquired) | (Original and after-acquired) | ||
| (In detail) | (In detail) | ||
| Disposition of Liabilities | Disposition of Assets | ||
| (A full accounting for all values | (A full accounting for all values | ||
| assumed as above, per contra) | assumed as above, per contra) | ||
| Operations of the Trustee: | Operations of the Trustee: | ||
| Expenses | Income | ||
| (In detail) | (In detail) | ||
| Values Continued or Returned | Values Continued or Returned | ||
| to the Owner: | to the Owner: | ||
| Assets | Liabilities | ||
| (In detail) | (In detail) | ||
In the first example, which may be termed the usual form, the net balance of the account indicates the profit or loss incurred in winding up the business. If the values used as the basis for the statement are those of the statement of affairs, this profit or loss is in addition to the expected loss shown by the deficiency account. If, however, the book values are used as the basis for the statement, the profit or loss will be the net profit or loss on the entire realization and liquidation. Under the new and second form a full accounting is made for the value at which every asset is brought into the statement so that a separate figure of profit or loss is not shown excepting in so far as that is made a part of the operating section of the statement. Sometimes a third form is used which is not a formal statement but consists rather of the auditor’s working sheet. In this, columns are used to show the assets taken over by the trustee; the new assets acquired by him; the realization of the assets; the losses incurred on realization; the net assets remaining to be realized or to be returned to the owner; a similar statement in columnar form showing the liabilities to be liquidated; the full or partial liquidation of the liabilities; and the portion turned back to the owner or continued for further liquidation.
Supporting Schedules
Where the first form of the realization and liquidation statement is made use of, the profit or loss as shown by that statement should be explained by means of a supporting statement known as the realization and liquidation profit and loss account in which will be shown the losses on realization of the assets and any other items which have entered into profit or loss as shown by the realization and liquidation statement. Another schedule known as the trustee’s cash account is also usually presented. In this appears a more or less summarized statement of cash receipts and disbursements, indicating the main lines of activity of the trustee and their results.
The Question of Cash
It is sometimes maintained that inasmuch as cash is a realized asset it has no place in the realization and liquidation statement. Accordingly, under that theory the cash appears only in the trustee’s cash account. There is a good reason, however, for the insistence of some that the realization and liquidation statement should show all the assets taken over by the trustee or receiver and a full accounting for them. Therefore, the cash taken over by the trustee and all subsequent cash acquired by him must be shown in the realization and liquidation statement and fully accounted for as disbursed or still on hand. Inasmuch as the statement has no foundation in practice, it has no standardized form and therefore such matters of opinion will largely be left to the individual student except so far as the force of logic may in the course of time indicate the best method of treatment.