Fact pattern: Green Corp has total assets of P200 and total liabilities of P300. The assets are expected to be realized at an average of 75% of carrying amount. The expected net settlement amount of the liabilities is equal to the carrying amount. Of the total liabilities, one-fourth represents secured and priority claims. 1. The "net free assets" are 75. 2. Unsecured non-priority creditors would expect to recover only one-third (1/3) of their claim. 3. Mr. A has a P36 loan receivable from Green Corp. The loan is secured by an asset with a carrying amount of P40. Mr. A can expect payment of P18 on the loan. 4. Mr. B has a P15 note receivable from Green Corp. The note is secured by an asset with a carrying amount of P20. Mr. B can expect payment of P11 on the note. 5. You are a major shareholder of Green Corp. You own 80 out of the 100 outstanding ordinary shares with P1 par value per share. You can expect to recover nothing on the liquidation of Green Corp.
Added by Manuel G.
Step 1
False. The net free assets are calculated by subtracting total liabilities from the expected realization of assets, which in this case would be 75% of P200 or P150. Therefore, the net free assets would be -P150 (a deficit). Show more…
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