In the IPO, investors valued the company's total equity at $566 million, about 15% higher than its reported equity of $490 million. So assuming investors accepted the $1.27 billion book value of the company's liabilities as a reasonable proxy for their fair value, they considered the fair value of the total assets to be at least $1.76 billion, or at most 15% more than that — meaning that Tronox was carrying more liabilities than assets.

Still, agreeing on which fair-value calculation to use is a complicated matter. And trying to figure out which models and methods a bankruptcy judge will deem useful is even tougher. For instance, John LaLiberte, a partner with the law firm Sherin & Lodgen, says bankruptcy judges will also consider "a probability analysis" related to contingent liabilities to figure out what percentage of the estimated losses the company will likely book in the future.

Complicating matters further is the fact that the concept of fair value has been vilified over the past year by bankers and their lobbyists who hate the idea that accounting rule-makers were requiring mark-to-market measures of financial liabilities during a credit crisis. On the other hand, critics with more conservative views said fair-value accounting didn't go far enough to rein in abuse because it was open to a significant amount of management discretion. To be sure, the accounting rule known as FAS 5 allows a healthy dose of discretion with regard to booking contingent liabilities.

The controversy surrounding the fair-value calculation is just one more stumbling block in an already complicated family feud that the judges will have to sort out without the help of accounting rules. "GAAP is a method to keep score, but it doesn't necessarily have anything to do with valuation," says Manning.

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