In such cases, investors in preferred stock have priority over holders of common stock.
Liquidation can also refer to the process of selling off inventory, usually at steep discounts.
In making that determination, a reporting entity should consider whether and how the accrual of costs and income and recognition of other assets that were recorded as of the adoption of the liquidation basis (for example, the cumulative-effect adjustment) would affect the financial highlights information and whether the result would be meaningful to a user of the entity’s financial statements.
A fund manager should consider whether financial highlights continue to be relevant and useful to understanding the fund’s statement of net assets in liquidation or statement of changes in net assets in liquidation.
In the simplest terms, this means selling the position for cash; another approach is to take an equal but opposite position in the same security—for example, by shorting the same number of shares that make up a long position in a stock.
A broker may forcibly liquidate a trader’s positions if the trader’s portfolio has fallen below the margin requirement, or she has demonstrated a reckless approach to risk-taking.
TIS SECTION 6910.42: "Presenting financial highlights under the liquidation basis of accounting for an investment company." This TQA discusses if an investment company should present financial highlights after adopting the liquidation basis of accounting.
It is not necessary to file for bankruptcy to liquidate inventory.
Liquidation can also refer to the act of exiting a securities position.
TIS SECTION 6910.39: "Presentation of stub period information by investment company." This TQA discusses if an investment company which has adopted liquidation basis should present information for the stub period (last balance sheet date to the date liquidation becomes imminent).
The TQA concludes that an investment company should consider the requirements of its regulator(s), the needs of the users of the financial statements, and the governing documents when determining the information to present.