Association of Chartered Certified Accountants (ACCA) Certification Practice Test

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What is the aim of liquidation?

To restructure the company for future growth
To keep the business operational
To wind up the company and bring its life to an end
To enhance the value of the company's shares

The correct answer is: To wind up the company and bring its life to an end

The aim of liquidation is to wind up the company and bring its life to an end. This process involves selling off the company's assets to pay creditors and settling any remaining obligations. Liquidation typically occurs when a company cannot continue its operations due to insolvency or other financial difficulties, making it necessary to cease all business activities. The goal is to ensure that any available resources are distributed fairly among creditors and shareholders, effectively closing down the business permanently. Unlike options that focus on restructuring or enhancing shareholder value, liquidation signifies a complete termination of the company's operations and legal existence.