balance sheet test

balance sheet test

the process of ascertaining, from a company's balance sheet, what would be available to members of the company were it to be immediately wound up, with the assets being sold and the liabilities discharged. If, on examination, the company is found to be insolvent (i.e. liabilities exceed its assets), it is an offence for the directors to permit it to continue trading. Any debts incurred by the company by continued trading after the directors are aware that the company is insolvent become the personal liability of the directors.
References in periodicals archive ?
A creditor must show that either the buyer cannot pay its debts at maturity or ceased paying its creditors--the equity test for insolvency; or the buyer's liabilities exceeded its assets--the balance sheet test for insolvency.
However, most bankruptcy courts allow reclamation only if the debtor is shown to be "insolvent" under the balance sheet test employed by Section 101 of the Bankruptcy Code.
I'd add to that a proper balance sheet test for bidders to make sure they aren't going to topple over, leaving a question mark over the delivery of public projects and an exposed supply chain.
The test for insolvency has been expanded from that applied under the previous Bankruptcy Law to include a balance sheet test, rather than only a cash flow test.
The New Law introduces an alternative balance sheet test, where the assets of the business are insufficient to cover its liabilities.
Under the balance sheet test, courts analyze whether the aggregate fair market value of a corporations' assets (after accounting for the cost to liquidate the assets) exceeds the amount of money it would take for the corporation to satisfy all of its liabilities (whether on-balance sheet or off-balance sheet and whether matured, contingent or unliquidated).
Hanks also provides a compelling case that the balance sheet test for lawful dividends that is embraced by the MBCA in many contexts adds little.
Unfortunately, accounting standards do not specifically require a balance sheet test if a firm is spending money it should be holding in trust for others, so most CPAs do not test the trust ratio.
Try the balance sheet test. Write down a list of the reasons to get back together and the reasons you shouldn't.
The second is a balance sheet test - generally a more complex exercise - to establish whether the assets exceed the liabilities.
Under state law, the creditor must satisfy either the equity or balance sheet test for insolvency.
The IRS takes the position that the analysis of guaranty arrangements and inadequate capitalization is a test separate and apart from the balance sheet test in determining whether premiums paid to a captive are deductible.