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Answer :
Final answer:
Liquidation basis of Accounting under U.S. GAAP is used when liquidation of an entity is imminent, as per ASC 205-30. This is not determined by management preference or changes in leadership but by a realistic plan or necessity to dissolve the entity.
Explanation:
The Liquidation basis of Accounting is used under U.S. GAAP when liquidation is imminent. According to Accounting Standards Codification (ASC) 205-30, an entity must use the liquidation basis of accounting when liquidation becomes imminent, which means that the likelihood of the entity’s dissolving is high and the entity has a plan for liquidation. This approach is not used for routine changes in management or when the management desires to adopt this basis on their own volition. It is specifically used when the entity has either decided to liquidate or has no realistic alternative to liquidation.
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