Accounting in the liquidation of a company

The company’s liquidation procedure can be quite stressful for an accountant and the owner of the business, if the company has been active in economic activities, has staff, and property is recorded on the balance sheet. But if we divide the process of dissolution into blocks from an accounting point of view, figure out how to properly document and reflect them in the company’s accounting, we will face no challenges in the liquidation procedure.

So, after the owner has taken a decision on the liquidation, drawn up the relevant minutes and made a record in the Unified State Register about the decision on the termination of a legal entity, the Liquidation Commission (LC) begins its work. 

However, it is important to note that even if the head of the liquidation commission is the director of the company, he/she needs to re-obtain an electronic digital signature with the liquidator status for electronic document management or submission of statements.

The LC works in a certain sequence, but some actions are performed simultaneously. 

Block 1. Employees.

All employees of the company, including those on maternity leave, must be notified in writing of their impending dismissal (according to clause 1 of Article 40 of the Labor Code) no later than 2 months before the date of dismissal. Until the date of dismissal, all employees continue to work and receive their wages.

In the same period, 2 months prior to the date of dismissal, you must notify the State Employment Service at the place of legal entity registration by submitting the form No. 4-ПН “Information about the planned mass layoffs of employees”. Ignoring this requirement will for instance cost UAH 26,000 in 2022.

When everyone has been notified, both the employees and the employment service, it is time to prepare for the final settlement with the employees due to dismissal. That is, put personal records in order and make preliminary settlements of: 

  • severance pay; 
  • compensation for unused vacation time;
  • taxes.

Perhaps the amounts will be impressive, and in order to save money, you can offer employees to take their vacation leaves. Of course - by agreement and preferably under the supervision of a lawyer. 

Compensation for unused vacation leave is taxed in the same way as normal wages - personal income tax, unified social tax, military tax. Severance pay, usually in the amount of average monthly earnings, is subject only to personal income tax and military tax.

At this stage, you need to think about the employment of privileged categories of employees – pregnant women, single mothers, etc.

When the date of dismissal of employees comes, the liquidator must issue an order, which each employee must sign and get a copy. An employment record, as well as final settlements, must be made on the same day. 

It would seem that everything is simple, but the moment of employment relationship termination is most often the subject of complaints and appeals to the courts. 

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Block 2: Full inventory and evaluation of assets in the liquidation of LLC

Based on the order, the LC conducts a full inventory of assets and liabilities. Its procedure is identical to the annual inventory. The result will be as follows: 

  • inventory sheets; 
  • acts of inventory of settlements with debtors and creditors; 
  • balance sheets. 

At this stage, you need to assess the property, namely to bring it in line with the real value of the asset. For example, according to the balance sheet, the value of computer equipment is UAH 10,000, but it can be sold for UAH 18,000. The assessment can be carried out by the Liquidation Commission, if the company doesn’t have the state share of the property. Based on the Assessment Act, data must be entered into the accounting of the legal entity, thus increasing the value of assets.

On the basis of the inventory data it is necessary to claim the receivables, notifying the contractors in writing. The money received will be used to pay off obligations to employees and creditors.

After the results of the inventory have been approved, the legal entity closes all of its bank accounts, except for one, which will be used to settle liabilities.

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Block 3: Liquidation balance sheets

There should be at least two: 

  • interim liquidation balance sheet;
  • liquidation (zero) balance sheet.

The balance sheet is a set of financial statements that is usual for a legal entity, i.e. they differ from the usual one only by the date.

Based on the results of the inventory, taking into account the assessment of the property, after the end of the deadline for filing claims from creditors, you must prepare an interim liquidation balance, that is, before the settlements begin.

At this stage you will see whether there is enough money for settlements and repayment of debts. In case of lacking money, the legal entity proceeds to sell the property. 

Please note! During the liquidation period the legal entity continues to keep accounting and pay taxes from the sale of its property according to the general rules.

Settlements with creditors must be made in a certain sequence: 

  1. Employees.
  2. Taxes.
  3. Other counterparties.

After making all settlements with creditors, the Liquidation Commission draws up a liquidation balance sheet for internal use. It shall contain information about remainings on the balance sheet after the settlements, i.e. what the owners can count on.

After settlements with the founders, the liquidation balance sheet will be zero, that is, without any figures.

Please note that no personal income tax military tax shall be withheld from payment to owners, physical persons, of their shares. Such individuals must themselves report to the tax authorities and pay taxes, if they arise.

Block 4: Audits and Reporting

The relationship with the tax and insurance funds during the liquidation period is limited to the filing of accounts for the audit.

Reporting to the tax and insurance funds before the date of liquidation is filed according to the general procedure. The tax authorities and the social security authorities must carry out a documentary check beforehand.

The liquidation statements, i.e. the last statements, shall be filed within the period that corresponds to the date of liquidation. Reporting forms depend on the taxation system used by the legal entity and taxes and duties paid by it.

The deadline for filing such reports under the law is usual, but in practice it is better to submit the liquidation statements as early as possible.

Along with the last reports you must submit a liquidation (zero) balance sheet to the tax authorities. This is the reason for canceling your VAT payer registration and issuing the tax certificate of absence of tax arrears. 

The same liquidation (zero) balance sheet shall be submitted to statistics authorities. 

To summarize, it should be noted that during liquidation accounting is kept according to the same rules and regulations as during the liquidation period. With the only peculiarity being that on the date of liquidation all accounting accounts are closed due to the lack of figures.

Our team offers a well-coordinated team of accountant and lawyer. This gives you an additional guarantee that everything will be done properly, in due time and without any objections from tax or other controlling bodies.

You can learn the service fee of company liquidation and accounting support of the procedure here.

Do you intend to terminate the company in Kyiv? Don’t hesitate to contact us. We will take care that everything has passed simply, smoothly and with your minimum efforts.

Publication date: 25/05/2022

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