What is a quasi-reorganization?

A quasi-reorganization is a relatively obscure provision under generally accepted accounting principles (GAAP), which states that under certain circumstances, a firm may eliminate a deficit in its retained earnings account by restating assets, liabilities, and equity in a manner similar to a bankruptcy.

What is a quasi-reorganization and how is such accounted for?

A quasi-reorganization is an accounting process under which a business can eliminate a retained earnings deficit. This is done by netting paid-in capital in excess of par against the retained earnings deficit.

What is included in contributed capital?

Contributed capital is the total value of the stock that shareholders have bought directly from the issuing company. It includes the money from initial public offerings (IPOs), direct listings, direct public offerings, and secondary offerings—including issues of preferred stock.

How can an accumulated deficit be reduced?

Deficit Elimination One way to eliminate the accumulated deficit is for companies to earn enough profits, but it can take a long time and may require additional funds. An alternative way of deficit elimination is to use certain accounting measures.

What does it mean to do a quasi reorganization?

In short, quasi-reorganization is doing the assets and liabilities revaluation at fair value, and eliminating negative re- tained earnings or deficits. The concept of a quasi reorganization is not adopted in International Financial Reporting Standards (IFRS).

Can a company reduce par value with a quasi-reorganization?

Companies have some flexibility when deciding how to proceed with the quasi-reorganization; it is possible to reduce par value, increase additional paid-in capital, and zero out retained earnings at the same time. 3 

When to recognize restructuring costs in IFRS and Gaap?

Both IFRS and US GAAP require certain restructuring costs to be recognized in the financial statements before the restructuring actually occurs. However, determining the timing of liability recognition, and which costs to include, differs.

When to use quasi reorganization for retained deficit?

By definition, quasi reorganization is a procedure that eliminates a retained deficit without liquidating the corpora- tion and starting over again. This meth- od is used if a company with a retained deficit has overcome past problems and has a future.