Abstract

Trade claims (or “claims”) are investments in unpaid debts of bankrupt companies. Claims are usually amounts due vendors who provided products and/or services to the bankrupt entity. In cases where investors, such as hedge funds or investment partnerships, hold trade claims for sale, to comply with current U.S. Generally Accepted Accounting Principles (U.S. GAAP), these investments must be reported at “fair value,” which is different than cost, intrinsic, investment, or other value. Claims are generally unsecured debts that are not traded in an organized market. So, determining fair value can be a difficult and subjective process. To that end, the purpose of this article is to provide examples of appropriate fair value methodologies to apply when valuing trade claims for financial statement purposes.