Chapter 30, Problem 5CQ

Summary Introduction

To explain: Difference between liquidation and re-organization.

Liquidation:

Liquidation is a process whereby the company is dissolved and in order to pay off its existing liabilities the assets are set to be sold for their salvage values. The going concern concept ceases to exist and the operations of the company comes to an end. The debtors are no more participants in the business and the creditors have  authority to sell off the company’s assets to settle its obligations.

The situation of liquidation is an ultimate situation as to when the company is completely unable to smoothly function in terms of its operations, revenue generation, and fulfilling of obligations and settlement is devised to completely cease everything.

Re-organization:

Re-organization plan of the business is being devised by the relevant authorities of the business in co-ordination with the creditors of the business. It tends to provide a phase to the business that it may re-organize its activities in certain manner that the deviations in the earlier business model may be fixed.

The unnecessary business activities may be completely ceased so as to indulge into the core business activities with all of its available resources.