Hypothetical Liquidation at Book Value (HLBV) – Case Study
Hypothetical Liquidation at
Book Value (HLBV) ¨C
Case Study
Bill Fisher
Deloitte Tax LLP
Tom Keefe
Deloitte & Touche LLP
Todd Samson
Deloitte Tax LLP
HLBV ¨C Basic
Concepts
Hypothetical Liquidation at Book Value
(HLBV) Method
? HLBV is a balance sheet-oriented approach to the
equity method of accounting which provides a
methodology for allocating pre-tax GAAP income or loss
to an investor
? HLBV calculates the amount each partner would
receive if the partnership were liquidated at book value
at the end of each measurement period. The change in
the allocated amount to each partner during the period
is book income/loss allocated to that partner (adjusted
for distributions and contributions)
3
Copyright ? 2014 Deloitte Development LLC. All rights reserved.
Hypothetical Liquidation at Book Value
(HLBV) Method (cont.)
? Generally, the HLBV Method is not considered
appropriate where the conventional equity
method can be applied
? Challenges to conventional application of equity
method:
¨C Investee¡¯s capital structure provides different
rights and priorities to its owners or ownership
percentages are not specified (or varies over the
life of the investment)
4
Copyright ? 2014 Deloitte Development LLC. All rights reserved.
Concept of HLBV Method
? Partnership assumes liquidation of assets at
book value
? Determine how much to allocate to each partner
? The change in the allocated amount to each
partner during the period is book income/loss
allocated to that partner (adjusted for
distributions and contributions)
5
Copyright ? 2014 Deloitte Development LLC. All rights reserved.
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