Liquidating hedge

As an example, if an investment company with a December 31 year-end adopts liquidation basis on July 1, a full set of financial statements (including financial highlights) should be presented as of June 30 and for the period January 1 through June 30 (excluding schedule of investments).

For the liquidation period from July 1 through December 31, only a statement of net assets in liquidation and a statement of changes in net assets in liquidation are required to be presented.

If the effects of adopting liquidation basis of accounting are determined to be immaterial, the notes to the financial statements generally should include an affirmative statement to that effect.

TIS SECTION 6910.42: "Presenting financial highlights under the liquidation basis of accounting for an investment company." This TQA discusses if an investment company should present financial highlights after adopting the liquidation basis of accounting.

If investments are held as of December 31, the statement of net assets in liquidation should include a schedule of investments.

If management does not intend to continue to solicit new investors or with the same investment strategy, the liquidation basis of accounting may be appropriate.

As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims. The business is no longer in existence once the liquidation process is complete.

Unlike when individuals file for Chapter 7 Bankruptcy, the business debts still exist.

TIS SECTION 6910.37: "Considering the length of time it will take an investment company to liquidate its assets and satisfy its liabilities when determining if liquidation is imminent." This TQA discusses if an entity should consider the length of time it will take to liquidate its assets and satisfy its liabilities when determining if liquidation is imminent.

Under ASC 205-30-25-2, liquidation is imminent if either of the following is present: The TQA concludes that liquidation is imminent based on the occurrence of events and does not include a time element and therefore the length of time should not be taken into account when determining if liquidation is imminent.

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