Page 128 - Bankruptcy Volume 1

 The amount of prior retained earnings or deficit and other comprehensive income or loss elimi-
nated

 Significant matters relating to the determination of reorganization value, such as the following:

— The method or methods used to determine reorganization value, as well as factors such as
discount rates, tax rates, the number of years for which cash flows are projected, and the
method of determining terminal value

— Sensitivity assumptions — that is, assumptions about which there is a reasonable possi-
bility of the occurrence of a variation that would have significantly affected measurement
of reorganization value

— Assumptions about anticipated conditions that are expected to be different from current
conditions, unless otherwise apparent

Disclosure of the adjustments to the historical balance sheet values, the amount of debt forgiveness, and
other adjustments to reflect the effects of the implementation of the plan of reorganization may be best
presented in a columnar format. The disclosure begins with a column for the ending balance sheet of the
debtor prior to reflecting the fresh-start and plan adjustments, presents a column that reflects the debt
discharge, a column to reflect the effects of the plan of reorganization, a column that reflects the effects
of the revaluation adjustments to asset and liability values, and culminates in a column that reflects the
opening balance sheet of the reorganized entity.

Combined Presentation of Debtor and Reorganized Entity Financial Statements

Fresh-start financial statements prepared by entities emerging from Chapter 11 will not be comparable to
those prepared while the entity was a debtor under Chapter 11 because they are of a different reporting
entity and prepared using a different basis of accounting. Accordingly, as stated in FASB ASC 852-10-
45-26, comparative financial statements that straddle an effective date should not be presented.

The SEC and other regulatory agencies may require the presentation of predecessor financial statements
with those of the emerged or successor entity. However, such presentations should not be viewed as a
continuum. Predecessor and successor components of any combined presentation should be clearly la-
beled as such. In a typical presentation that includes both processor and successor information, visual
clues such as a wide black line between the columnar presentation of predecessor and successor infor-
mation is often used.

Preconfirmation Contingencies

Upon adopting fresh-start reporting, unresolved preconfirmation contingencies may exist that should be
recognized in the balance sheet in a manner consistent with the requirements of FASB ASC 805, Busi-
ness Combinations. Once the reorganized company has issued financial statements reflecting fresh-start
reporting, any adjustments to these preconfirmation contingencies should be included in the determina-
tion of net income in the period in which the adjustment is determined. Such adjustments can result from
resolution of a contingency or changes in estimates of amounts initially recorded at emergence from
Chapter 11. Adjustments of preconfirmation contingencies do not adjust the amount of goodwill record-
ed upon the application of fresh-start reporting, but should be included in income or loss from continu-
ing operations of the emerged entity and should be separately disclosed.

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