| Abstract: | National and international case law refers to two basic tests of insolvency: the "balance sheet" test and the "cashflow" test. While the former method is argued to be the bona fide test for insolvency, accounting principles fail to provide serviceable data for that function. Hence, the cashflow test is superior to the balance-sheet test principally because it quantifies the market worth of assets. The premise is that a financial test of insolvency requires current money equivalents for assets to be compared against all business debt incurred by the entity. |
