01-20-2010, 04:33 AM
Hi Sky Star,
As far as I understand from your question, you are worried about disclosure requirement of Capital and Loan in Balance Sheet in compliance with IFRS/IAS so I will respond accordingly.
The spirit of the IFRS /IAS is âFair presentationâ requires faithful representation of the effects of transactions and other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses laid down in the IASBâs Framework. The application of IFRS, with additional disclosure where required, is expected to result in financial statements that achieve a âfair presentation.â
IFRS does not define the term âcapitalâ and therefore with this new disclosure requirement any ambiguity or controversy with respect to the interpretation of such an important aspect of the financial position of an entity should be put to rest. For example, in certain jurisdictions, it is a common practice to show as part of âequity,â subordinated loans from owners that are in the nature of âequityâ and have distinct features of âequityâ (i.e., they are noninterest bearing and have no repayment terms specified and thus are long-term in nature) and thus could be considered âresidual interest.â In such jurisdictions, usually companies do not infuse huge amounts of share capital, instead, manage the business using long and term loans from their owners/shareholders that are in the nature of âequity.â Financial institutions therefore treat such owner/shareholder loans on par with share capital for the purpose of satisfying their lending norms and thus provide funds and other banking facilities to such companies in these jurisdictions on the strength of both share capital and such loans from the owners/shareholders. In such circumstances it is therefore obvious that these entities intend to treat as âcapitalâ both âshare capitalâ and even such owner/shareholder loans as their âtrueâ capital. With such practices prevalent in many jurisdictions around the world, IAS 1 makes it incumbent upon an entity to clearly define and disclose what the entity regards as âcapitalâ for the purposes of running its business and for obtaining financing. In other words, IAS 1 requires disclosure of what an entityâs objectives, policies and processes are for managing âcapitalâ and quantitative data about what the entity regards as âcapital.â
Furthermore, in case there are any capital requirements that an entity has to comply with
(say, âminimum capitalâ as per the corporate law governing the jurisdiction where the entity is incorporated), then IAS 1 also requires disclosure of the whether the entity has in fact complied with those capital requirements. In the event the entity has not complied with such capital requirements, IAS 1 further requires disclosures of consequences of such noncompliance.
The following is the agreed capital structure
1. Share capital
2. Share premium
3. Retained earning
4. Shareholderâs loans in the nature of equity (including subordinated loans)
5. Statutory reserve (as per local commercial company law)
6. Revaluation reserve
I hope you will find your answers,
Regards,
As far as I understand from your question, you are worried about disclosure requirement of Capital and Loan in Balance Sheet in compliance with IFRS/IAS so I will respond accordingly.
The spirit of the IFRS /IAS is âFair presentationâ requires faithful representation of the effects of transactions and other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income, and expenses laid down in the IASBâs Framework. The application of IFRS, with additional disclosure where required, is expected to result in financial statements that achieve a âfair presentation.â
IFRS does not define the term âcapitalâ and therefore with this new disclosure requirement any ambiguity or controversy with respect to the interpretation of such an important aspect of the financial position of an entity should be put to rest. For example, in certain jurisdictions, it is a common practice to show as part of âequity,â subordinated loans from owners that are in the nature of âequityâ and have distinct features of âequityâ (i.e., they are noninterest bearing and have no repayment terms specified and thus are long-term in nature) and thus could be considered âresidual interest.â In such jurisdictions, usually companies do not infuse huge amounts of share capital, instead, manage the business using long and term loans from their owners/shareholders that are in the nature of âequity.â Financial institutions therefore treat such owner/shareholder loans on par with share capital for the purpose of satisfying their lending norms and thus provide funds and other banking facilities to such companies in these jurisdictions on the strength of both share capital and such loans from the owners/shareholders. In such circumstances it is therefore obvious that these entities intend to treat as âcapitalâ both âshare capitalâ and even such owner/shareholder loans as their âtrueâ capital. With such practices prevalent in many jurisdictions around the world, IAS 1 makes it incumbent upon an entity to clearly define and disclose what the entity regards as âcapitalâ for the purposes of running its business and for obtaining financing. In other words, IAS 1 requires disclosure of what an entityâs objectives, policies and processes are for managing âcapitalâ and quantitative data about what the entity regards as âcapital.â
Furthermore, in case there are any capital requirements that an entity has to comply with
(say, âminimum capitalâ as per the corporate law governing the jurisdiction where the entity is incorporated), then IAS 1 also requires disclosure of the whether the entity has in fact complied with those capital requirements. In the event the entity has not complied with such capital requirements, IAS 1 further requires disclosures of consequences of such noncompliance.
The following is the agreed capital structure
1. Share capital
2. Share premium
3. Retained earning
4. Shareholderâs loans in the nature of equity (including subordinated loans)
5. Statutory reserve (as per local commercial company law)
6. Revaluation reserve
I hope you will find your answers,
Regards,
