Quasi-Reorganization

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Quasi-Reorganization

In American accounting, the act of changing a company's records to eliminate a deficit in retained earnings by restating its balance sheet as if it were in bankruptcy. No bankruptcy is actually filed, however, and shareholders must agree to the changes. Quasi-reorganizations are controversial because they do not improve a company's actual state; rather, they simply make its books appear healthier. It is rarely done in practice.
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* Reduction of the nominal value of Indomobil's stake in a number of subsidiaries as a result of a decline in the nominal value of each subsidiary under quasi reorganization. The value of participation, percentage of ownership and number of shares owned by Indomobil in subsidiaries did not change.
43 reinforced an earlier rule permitting an accounting procedure known as a corporate readjustment--or more commonly, a quasi reorganization.
43 provides guidance for the accounting procedures in a quasi reorganization, it does not specify the conditions under which one is appropriate.
No capital account has a deficit after the quasi reorganization.
Parties entitled to vote on corporate policy are informed of the quasi reorganization and approvals required by state law and corporate charter are obtained.
The accounting for the quasi reorganization reflects substantially what might be accomplished in a reorganization by legal proceedings." This includes restating assets to current value and making appropriate modifications to the capital accounts, such as eliminating a deficit in retained earnings to minimize the need for similar reorganizations in the future.
Similarly, financial reporting varies depending on whether a debt restructuring occurs within the context of a quasi reorganization, a troubled debt restructuring or as part of a bankruptcy settlement.
The first alternative available to a company experiencing continued book losses resulting in a retained earnings deficit is to reorganize on its own - a quasi reorganization. The accounting rules for quasi reorganizations are covered in chapter 7A of Accounting Research Bulletin no.
There are a number of benefits to a quasi reorganization. It requires less time and money than a legal reorganization, and if the company is generating positive income, dividends may be paid immediately rather than, as some states require, being delayed until the negative retained earnings balance has been eliminated.
Assuming the company does not elect quasi reorganization, a restructuring of debt by a financially distressed company falls under Financial Accounting Standards Board Statement no.
* ACCOUNTING TREATMENT of a restructuring varies depending on whether it occurs through a quasi reorganization, a troubled debt restructuring or as part of a bankruptcy settlement.
Chapter 11 bankruptcy and quasi reorganizations are included here, as are unleveraged recapitalizations and subsidiary spinoffs.
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