statement of affairs

When liquidation of a business is foreseen but not yet accomplished, a different financial statement is prepared. This statement is known as the Statement of affairs.

A statement of affairs is prepared for a company in the process of liquidation. It reflects the financial condition of the company on a going out of business rather than a going concern basis. Liquidation value instead of historical cost is used to value assets. Moreover, assets are not classified as current or noncurrent but according to the extent to which they are subject to secured claims. Liabilities are shown based on categories of creditors, and shareholders’ equity may become shareholders’ deficiency because a liquidating company may have a negative net worth