The preparation and the format of the statement of affairs have been cumbersome and confusing. Thus, a revised form is recommended in which the statement of affairs is split into two sections, one dealing with the assets and the other with the liabilities and the owners’ equity.
Before the statement of affairs is prepared, however, the account balances should be adjusted fully, an income statement should be prepared, and owners’ equity should be adjusted to include the net profit or net loss to date.
The asset portion of the statement of affairs identifies the assets of the liquidating entity and their book value, estimated net realizable value, and estimated gain or loss upon liquidation. Available assets are identified as follows:
1. Assets pledged with fully secured creditors.
2. Assets pledged with partially secured creditors.
3. Free assets available to unsecured creditors.
For each asset, the net realizable value must be estimated, using whatever information is available. For example, receivables would exclude unrealizable amounts; marketable securities would be based on current market reports; and real estate would reflect current market appraisals. Some assets, such as goodwill, may have no realizable value. For each asset, the difference between realizable value and book value is entered as a gain or loss upon liquidation. The assets available to unsecured creditors also are identified on the asset section of the statement of affairs.
The liability and owners’ equity section on the statement of affairs identifies the following components:
1. Fully secured creditors.
2. Partially secured creditors.
3. Unsecured creditors with priority (Class 1 through 6 creditors).
4. Unsecured creditors without priority (Class 7 creditors).
5. Owners’ equity deficiency or surplus.