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Certain Quasi Reorganizations

Quasi reorganization
a voluntary accounting procedure by which an
entity with an accumulated retained earnings
deficit adjusts its accounts to obtain a fresh

Quasi reorganization
may somewhat resemble a legally executed
reorganization, but the procedure is
accomplished without formal court
proceedings and does not contemplate the
creation of a new corporation,

Quasi reorganization
a change in corporate ownership, or a change
in the rights and interests of creditors or
owners. The procedure does, however,
normally require the approval of either the
board of directors or shareholders
depending on the laws of the state of

ASC 852-740-45-3
The tax benefits of deductible temporary
differences and carryforwards as of the date of a
quasi-reorganization as defined and contemplated
in Subtopic 852-20 ordinarily are reported as a
direct addition to contributed capital if the tax
benefits are recognized in subsequent years.

ASC 852-20 discusses the accounting to be
applied in a quasi reorganization. Additional
information on quasi reorganizations,
including related accounting guidance, is
available in the PricewaterhouseCoopers
Accounting and Reporting Manual, Section
5590.2, Quasi Reorganizations.

Pre-reorganization tax benefits

Under ASC 852-740-45-3, the tax benefits of
deductible temporary differences and carry
forwards that existed at the date of a quasi
reorganization must be credited directly to
contributed capital when they are recognized
subsequent to the quasi reorganization. Under
ASC 740-10-25-5

Pre-reorganization tax benefits

companies are required to recognize all
deferred tax assets that meet the more-likelythan-not recognition criterion
benefits may be recorded before they are
realized on a tax return

Pre-reorganization tax benefits

This generally will result in an entity recording a
deferred tax asset for the tax benefits of deductible
temporary differences and carry forwards existing
at the date of the quasi reorganization
We believe that in most instances where deferred
tax assets are recorded, a valuation allowance will
be necessary

Pre-reorganization tax benefits

Although there is no positive impact on the
income statement for post-quasi reorganization
recognition of pre-quasi reorganization tax

Pre-reorganization tax benefits

Any increase in the valuation allowance
subsequent to the date of the quasi
reorganization must be recognized in the
period in which it occurs, with the effect
allocated to the income tax provision for
continuing operations.