Question

20)

Generally, the liquidation value of a company is greater than its book value.

TRUE or FALSE?

Answer 1

This statement is true.

Generally, the liquidation value of a company is greater than its book value. Book value is the value at which an asset or liability is carried in the balance sheet. Most of the assets are carried in the balance sheet at cost less accumulated depreciation or amortization and after deducting the allowances or provisions from them. While liquidation value is the value at which the assets or liabilities will be liquidated or sold. So it is the market value of the assets or liabilities. Book value is recorded by following the conservatism principle like recording costs of some assets at cost or net realizable value or market value, whichever is low. So assets or liabilities are usually recorded at the lower amount than market values. So when the company liquidates, its liquidation value or market value is usually higher.