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ch15.3

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Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
15-1
Equity
CHAPTER 15
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
15-2
1.
Describe the corporate form
and the issuance of shares.
2.
Explain the accounting and
reporting for treasury shares.
3. Explain the accounting and
reporting issues related to
dividends.
4. Indicate how to present and
analyze equity.
PREVIEW OF CHAPTER 15
15-3
Intermediate Accounting
IFRS 3rd Edition
Kieso ● Weygandt ● Warfield
Corporate Capital
LEARNING OBJECTIVE 1
Describe the corporate form
and the issuance of shares.
Tiga jenis utama organisasi bisnis :
Proprietorship
Partnership
Corporation
Karakteristik khusus dari bentuk perseroan:
1. Pengaruh hukum perseroan.
2. Penggunaan sistem saham.
3. Pengembangan berbagai kepentingan kepemilikan.
15-4
LO 1
Corporate Form
Corporate Law

Korporasi harus menyerahkan artikel pendirian ke
badan pemerintah yang sesuai untuk negara di mana
pendirian tersebut diinginkan.

Instansi pemerintah menerbitkan piagam korporasi.

Keuntungan untuk digabungkan di mana undangundang mendukung bentuk organisasi bisnis.
15-5
LO 1
Corporate Form
Sistem Saham
Ekuitas dalam satu perusahaan umumnya terdiri dari sejumlah unit atau
lembar saham. Jika tidak ada ketentuan yang membatasi, maka setiap saham
memiliki hak-hak berikut :
15-6
1.
Untuk membagi laba dan rugi secara proporsional.
2.
Untuk ikut serta dalam manajemen (hak untuk memilih direktur
secara proporsional.
3.
Untuk membagi aktiva perusahaan bila terjadi likuidasi secara
proporsional.
4.
Untuk ikut serta secara proporsional dalam penerbitan saham baru
disebut preemptive right
LO 1
Corporate Form
Berbagai Kepentingan Kepemilikan
Saham biasa mewakili hak kepemilikan dasar.
Menanggung risiko terbatas bila terjadi kerugian.
Menerima manfaat bila terjadi keuntungan.
Tidak dijamin akan menerima dividen atau pembagian
aktiva bila perusahaan dilikuidasi.
Saham preferen dihasilkan oleh kontrak, pemegang saham
akan menerima hak berupa dividen saham preferen.
15-7
LO 1
Components of Equity
Ekuitas adalah kepentingan residu aktiva perusahaan setelah dikurangi
semua kewajiban. Istilah lain ekuitas adalah shareholder’ equity,
stockholders’equity atau corporate capital. Ekuitas merupakan
subklasifikasi dari statement of financial position yang dibagi menjadi
kategori di bawah ini :
1. Share capital.
2. Share premium.
3. Retained earnings.
4. Accumulated other comprehensive income.
5. Treasury shares.
6. Non-controlling interest (minority interest).
15-8
LO 1
Components of Equity
Ordinary Shares
Contributed
Capital
Account
Share Premium
Preference Shares
Account
Account
Two Primary
Sources of
Equity
Retained Earnings
Account
Less:
Treasury Shares
Assets –
Liabilities =
Equity
Account
15-9
LO 1
Corporate Capital
Penerbitan Saham
Accounting problems involved in the issuance of shares:
1. Par value shares.
2. No-par shares.
3. Shares issued in combination with other securities.
4. Shares issued in non-cash transactions.
5. Costs of issuing shares.
15-10
LO 1
Issuance of Shares
Saham dengan Nilai Pari
Nilai pari saham tidak memiliki hubungan dengan nilai
wajarnya. Nilai pari yang rendah menolong perusahaan
menghindari kewajiban kontinjen.
Corporations maintain accounts for:
Preference Shares or Ordinary Shares.
Share Premium.
15-11
LO 1
Issuance of Shares
Saham Tanpa Nilai Pari
Alasan untuk penerbitan saham :
Menghindari kewajiban kontinjen.
Menghindari kerancuan dalam hubungan
antara nilai pari dan nilai pasar wajar.
A major disadvantage of no-par shares is that some countries levy
a high tax on these issues. In addition, in some countries the total
issue price for no-par shares may be considered legal capital,
which could reduce the flexibility in paying dividends.
15-12
LO 1
Issuance of Shares
Illustration: Video Electronics AG is organized with 10,000
ordinary shares authorized without par value. If Video
Electronics issues 500 shares for cash at €10 per share, it
makes the following entry.
Cash
5,000
Share Capital—Ordinary
5,000
Video Electronics issues another 500 shares for €11 per share.
Cash
Share Capital—Ordinary
15-13
5,500
5,500
LO 1
Issuance of Shares
Illustration: Some countries require that no-par shares have a
stated value. If a company issued 1,000 of the shares with a €5
stated value at €15 per share for cash, it makes the following
entry.
Cash
Share Capital—Ordinary
Share Premium—Ordinary
15-14
15,000
5,000
10,000
LO 1
Issuance of Shares
Saham Diterbitkan dengan Sekuritas Lain
Alasan untuk penerbitan saham :
Menghindari kewajiban kontinjen.
Menghindari kerancuan dalam hubungan antara
nilai pari dan nilai pasar wajar.
15-15
LO 1
Shares Issued with Other Securities
BE15-4: Ravonette Corporation issued 300 shares of $10 par value
ordinary shares and 100 shares of $50 par value preference shares for
a lump sum of $13,500. The ordinary shares have a market value of
$20 per share, and the preference shares have a market value of $90
per share.
Ordinary shares
Preference shares
Allocation:
Issue price
Allocation %
Total
15-16
Number
300
100
Ordinary
$
13,500
40%
$
5,400
Amount
Total
x $
20.00 = $
6,000
x
90.00
9,000
Fair Market Value
$ 15,000
Preference
$
13,500
60%
$
8,100
Percent
40%
60%
100%
Proportional
Method
LO 1
Shares Issued with Other Securities
BE15-4: Ravonette Corporation issued 300 shares of $10 par value
ordinary shares and 100 shares of $50 par value preference shares for
a lump sum of $13,500. The ordinary shares have a market value of
$20 per share, and the preference shares have a market value of $90
per share.
Journal entry (Proportional):
Cash
15-17
13,500
Share Capital—Preference (100 X $50)
5,000
Share Premium—Preference
3,100
Share Capital—Ordinary (300 X $10)
3,000
Share Premium—Ordinary
2,400
LO 1
Shares Issued with Other Securities
BE15-4 (Variation): Ravonette Corporation issued 300 shares of $10 par
value ordinary shares and 100 shares of $50 par value preference shares
for a lump sum of $13,500. The ordinary shares have a market value of
$20 per share, and the value of preference shares are unknown.
Number
300
100
Ordinary shares
Preference shares
Allocation:
Issue price
Ordinary
Total
15-18
Ordinary
$
6,000
Amount
Total
x $
20.00 = $
6,000
x
Fair Market Value
$
6,000
Preference
$
13,500
(6,000)
$
7,500
Incremental
Method
LO 1
Shares Issued with Other Securities
BE15-4 (Variation): Ravonette Corporation issued 300 shares of $10 par
value ordinary shares and 100 shares of $50 par value preference shares
for a lump sum of $13,500. The ordinary shares have a market value of
$20 per share, and the value of preference shares are unknown.
Journal entry (Incremental):
Cash
15-19
13,500
Share Capital—Preference (100 X $50)
5,000
Share Premium—Preference
2,500
Share Capital—Ordinary (300 X $10)
3,000
Share Premium—Ordinary
3,000
LO 1
Issuance of Shares
Shares Issued in Noncash Transactions
Aturan umumnya: Saham yang diterbitkan untuk
jasa atau properti selain kas harus dicatat baik
pada:
Nilai pasar wajar saham yang diterbitkan maupun
pada
Nilai pasar wajar pertimbangan nonkas ynag
diterima, tergantung mana yang dapat ditentukan
lebih jelas.
15-20
LO 1
Shares Issued in Noncash Transactions
Illustration: The following series of transactions illustrates the
procedure for recording the issuance of 10,000 shares of €10
par value ordinary shares for a patent for Marlowe Company,
in various circumstances.
1. Marlowe cannot readily determine the fair value of the
patent, but it knows the fair value of the shares is €140,000.
Patent
Share Capital—Ordinary
Share Premium—Ordinary
15-21
140,000
100,000
40,000
LO 1
Shares Issued in Noncash Transactions
2. Marlowe cannot readily determine the fair value of the
shares, but it determines the fair value of the patent is
€150,000.
Patent
Share Capital—Ordinary
Share Premium—Ordinary
15-22
150,000
100,000
50,000
LO 1
Shares Issued in Noncash Transactions
3. Marlowe cannot readily determine the fair value of the
shares nor the fair value of the patent. An independent
consultant values the patent at €125,000 based on discounted
expected cash flows.
Patent
Share Capital—Ordinary
Share Premium—Ordinary
15-23
125,000
100,000
25,000
LO 1
Issuance of Shares
Biaya Penerbitan Saham
Biaya langsung yang terjadi ketika menjual saham
seperti :
Biaya penjaminan
Biaya akuntansi dan hukum,
Biaya percetakan, dan
Pajak,
Harus dilaporkan sebagai pengurang hasil yang
diterima dari penjualan saham.
15-24
LO 1
Preference Shares
Karakteristik yang berkaitan dengan penerbitan saham
preferen :
1. Preferensi atas dividen.
2. Preferensi atas aktiva pada saat likuidasi.
3. Dapat dikonversi menjadi saham biasa.
4. Dapat ditebus pada opsi perseroan.
5. Tidak mempunyai hak suara.
15-25
LO 1
Preference Shares
Features of Preference Shares

Cumulative

Participating

Convertible

Callable

Redeemable
A corporation may attach
whatever preferences or
restrictions, as long as it does
not violate its
country’s incorporation law.
The accounting for preference shares at issuance is similar
to that for ordinary shares.
15-26
LO 1
Preference Shares
Illustration: Bishop plc issues 10,000 shares of £10 par value
preference shares for £12 cash per share. Bishop records the
issuance as follows:
Cash
Share Capital—Preference
Share Premium—Preference
15-27
120,000
100,000
20,000
LO 1
Reacquisition of Shares
LEARNING OBJECTIVE 2
Explain the accounting and
reporting for treasury shares.
Alasan perusahaan membeli kembali sahamnya:
Untuk memenuhi distribusi pajak yang efisien dari
kelebihan kas kepada pemegang saham.
Untuk meningkatkan laba per saham dan pengembalian
atas ekuitas (return on equity).
Untuk memenuhi saham dalam kontrak kompensasi
saham karyawan atau memenuhi kebutuhan merger.
Untuk menghindari upaya pengambilalihan.
Membentuk pasar bagi saham.
15-28
LO 2
Reacquisition of Shares
Pembelian Saham Treasuri
Two acceptable methods:

Cost method (more widely used).

Par (stated) value method.
Saham treasuri mengurangi ekuitas.
15-29
LO 2
Purchase of Treasury Shares
Illustration: Pacific Company issued 100,000 shares of $1 par
value ordinary shares at a price of $10 per share. In addition, it
has retained earnings of $300,000.
ILLUSTRATION 15.4
Equity with No Treasury Shares
15-30
LO 2
Purchase of Treasury Shares
Illustration: Pacific Company issued 100,000 shares of $1
par value ordinary shares at a price of $10 per share. In
addition, it has retained earnings of $300,000.
On January 20, 2019, Pacific acquires 10,000 of its shares at
$11 per share. Pacific records the reacquisition as follows.
Treasury Shares
Cash
15-31
110,000
110,000
LO 2
Purchase of Treasury Shares
Illustration: The equity section for Pacific after purchase of the
treasury shares.
ILLUSTRATION 15.5
Equity with Treasury Shares
15-32
LO 2
Reacquisition of Shares
Penjualan Saham Treasuri

Di atas Harga beli (Cost)

Di bawah Cost
Kedua-duanya meningkatkan total assets and equity.
15-33
LO 2
Sale of Treasury Shares
Sale of Treasury Shares above Cost. Pacific acquired 10,000
treasury shares at $11 per share. It now sells 1,000 shares at
$15 per share on March 10. Pacific records the entry as
follows.
Cash
Treasury Shares
Share Premium—Treasury
15-34
15,000
11,000
4,000
LO 2
Sale of Treasury Shares
Sale of Treasury Shares below Cost. Pacific sells an
additional 1,000 treasury shares on March 21 at $8 per share,
it records the sale as follows.
Cash
8,000
Share Premium—Treasury
3,000
Treasury Shares
15-35
11,000
LO 2
Sale of Treasury Shares
ILLUSTRATION 15.6
Treasury Share
Transactions in Share
Premium—Treasury
Account
Illustration: Assume that Pacific sells an additional 1,000 shares
at $8 per share on April 10.
Cash
8,000
Share Premium—Treasury
1,000
Retained Earnings
2,000
Treasury Shares
15-36
11,000
LO 2
Reacquisition of Shares
Retiring Treasury Shares
Keputusan menghasilkan
•
•
pembatalan saham treasuri dan
pengurangan jumlah saham dari saham yang
diterbitkan.
Saham treasuri yang pensiun memiliki status saham
yang sah dan tidak diterbitkan.
15-37
LO 2
Dividend Policy
LEARNING OBJECTIVE 3
Explain the accounting and
reporting issues related to
dividends.
Beberapa perusahaan membayar dividen dalam jumlah
yang sama dengan laba ditahan yang tersedia secara
hukum. Mengapa?
1.
Menjaga perjanjian dengan kreditor.
2.
Memenuhi persyaratan perusahaan.
3.
Untuk membiayai pertumbuhan atau ekspansi.
4.
Untuk memperlancar pembayaran dividen.
5.
Untuk membangun dasar terhadap kemungkinan
kerugian.
15-38
LO 3
Dividend Policy
Financial Condition and Dividend Distributions
15-39

Sebelum mengumumkan dividen, manajemen harus
mempertimbangkan ketersediaan dana untuk
membayar dividen.

Seharusnya tidak membayar dividen kecuali posisi
keuangan saat ini dan masa depan menjamin
distribusi.
LO 3
Dividend Policy
Types of Dividends
1. Cash dividends.
3. Liquidating dividends.
2. Property dividends.
4. Share dividends.
All dividends, except for share dividends, reduce the total
equity in the corporation.
15-40
LO 3
Dividend Policy
Cash Dividends

Board of directors vote on the declaration of cash
dividends.
15-41

A declared cash dividend is a liability.

Companies do not
declare or pay cash
dividends on treasury
shares.
Three dates:
a. Date of declaration
b. Date of record
c. Date of payment
LO 3
Dividend Policy
Illustration: Roadway Freight Corp. on June 10 declared a cash
dividend of 50 cents a share on 1.8 million shares payable July
16 to all shareholders of record June 24.
15-42
At date of declaration (June 10)
Retained Earnings
Dividends Payable
900,000
At date of record (June 24)
No entry
At date of payment (July 16)
Dividends Payable
Cash
900,000
900,000
900,000
LO 3
Dividend Policy
Property Dividends
15-43

Dividends payable in assets other than cash.

Restate at fair value the property it will distribute,
recognizing any gain or loss.
LO 3
Dividend Policy
Illustration: Tsen, Ltd. transferred to shareholders some of its
investments (held-for-trading) in securities costing HK$1,250,000
by declaring a property dividend on December 28, 2018, to be
distributed on January 30, 2019, to shareholders of record on
January 15, 2019. At the date of declaration the securities have a
fair value of HK$2,000,000. Tsen makes the following entries.
At date of declaration (December 28, 2018)
Equity Investments
Unrealized Holding Gain or Loss—Income
Retained Earnings
Property Dividends Payable
15-44
750,000
750,000
2,000,000
2,000,000
LO 3
Dividend Policy
Illustration: Tsen, Ltd. transferred to shareholders some of its
investments (held-for-trading) in securities costing HK$1,250,000
by declaring a property dividend on December 28, 2018, to be
distributed on January 30, 2019, to shareholders of record on
January 15, 2019. At the date of declaration the securities have a
fair value of HK$2,000,000. Tsen makes the following entries.
At date of distribution (January 30, 2019)
Property Dividends Payable
Equity Investments
15-45
2,000,000
2,000,000
LO 3
Dividend Policy
Liquidating Dividends
Any dividend not based on earnings reduces amounts
paid-in by shareholders.
15-46
LO 3
Dividend Policy
Illustration: McChesney Mines Inc. issued a “dividend” to its
ordinary shareholders of £1,200,000. The cash dividend
announcement noted that shareholders should consider £900,000
as income and the remainder a return of capital. McChesney Mines
records the dividend as follows.
Date of declaration
Retained Earnings
900,000
Share Premium—Ordinary
300,000
Dividends Payable
15-47
1,200,000
LO 3
Dividend Policy
Illustration: McChesney Mines Inc. issued a “dividend” to its
ordinary shareholders of £1,200,000. The cash dividend
announcement noted that shareholders should consider £900,000
as income and the remainder a return of capital. McChesney Mines
records the dividend as follows.
Date of payment
Dividends Payable
Cash
15-48
1,200,000
1,200,000
LO 3
Share Dividends and Share Splits
Share Dividends
15-49

Issuance by a corporation of its own shares to shareholders
on a pro rata basis, without receiving any consideration.

Par value, not the fair value, is used to record the share
dividend.

Share dividend does not affect any asset or liability.

Journal entry reflects a reclassification of equity.

Ordinary share dividend distributable reported in the equity
section as an addition to share capital—ordinary.
LO 3
Share Dividends
Illustration: Vine plc has outstanding 100,000 shares of £1 par
value ordinary shares and retained earnings of £50,000. If Vine
declares a 10 percent share dividend, it issues 10,000 additional
shares to current shareholders. If the fair value of the shares at
the time of the share dividend is £8 per share, the entry is:
Date of declaration
Retained Earnings
Ordinary Share Dividend Distributable
15-50
10,000
10,000
LO 3
Share Dividends
Illustration: Vine plc has outstanding 1,000 shares of £1 par
value ordinary shares and retained earnings of £50,000. If Vine
declares a 10 percent share dividend, it issues 100 additional
shares to current shareholders. If the fair value of the shares at
the time of the share dividend is £8 per share, the entry is:
Date of distribution
Ordinary Share Dividend Distributable
Share Capital—Ordinary
15-51
10,000
10,000
LO 3
Share Dividends and Share Splits
Share Splits

To reduce the market value of shares.

No entry recorded for a share split.

Decrease par value and increased number of shares.
ILLUSTRATION 15.13
Effects of a Share Split
15-52
LO 3
Share Dividends and Share Splits
Share Split and Share Dividend Differentiated
A share split differs from a share dividend. How?

A share split increases the number of shares
outstanding and decreases the par or stated value per
share.

15-53
A share dividend,
►
increases the number of shares outstanding.
►
does not decrease the par value.
►
increases the total par value of outstanding shares.
LO 3
Presentation and
Analysis of Equity
Presentation of Equity
15-54
LEARNING OBJECTIVE 4
Indicate how to present and
analyze equity.
ILLUSTRATION 15.15
Comprehensive Equity
Presentation
LO 4
Presentation and Analysis of Equity
Disclosure of Restrictions on Retained Earnings
Such restrictions are best disclosed by note.

Restrictions imposed by bond indentures and loan
agreements commonly require an extended explanation.

The note disclosure should reveal
►
the source of the restriction,
►
pertinent provisions, and
►
the amount of retained earnings subject to restriction or
the amount not restricted.
15-55
LO 4
Presentation and Analysis of Equity
Presentation of Statement of Changes in Equity
ILLUSTRATION 15.17
Statement of Changes in Equity
15-56
LO 4
Presentation and Analysis of Equity
Analysis
Illustration: Gerber’s Inc. had net income of $360,000, declared
and paid preference dividends of $54,000, and average ordinary
shareholders’ equity of $2,550,000.
ILLUSTRATION 15.18
Ratio shows how many dollars of net income the company
15-57
earned for each dollar invested by the owners.
LO 4
Analysis
Illustration: Troy SA has cash dividends of €100,000 and net
income of €500,000, and no preference shares outstanding.
Illustration 15-15
ILLUSTRATION 15.19
15-58
LO 4
Analysis
Illustration: Chen Ltd’s ordinary shareholders’ equity is
HK$1,000,000 and it has 100,000 ordinary shares outstanding.
ILLUSTRATION 15.20
Amount each share would receive if the company
were liquidated on the basis of amounts reported
on the statement of financial position.
15-59
LO 4
APPENDIX 15A
Dividend Preferences and Book Value Per
Share
Dividend Preferences
LEARNING OBJECTIVE 5
Discuss the different types of preference share dividends and their effect on book
value per share.
Illustration: In 2019, Mason Company is to distribute €50,000 as
cash dividends, its outstanding ordinary shares have a par value of
€400,000, and its 6 percent preference shares have a par value of
€100,000.
1. If the preference shares are noncumulative and nonparticipating:
15-60
ILLUSTRATION 15A.1
Dividend Distribution, Non-Cumulative and Non-Participating Preference
LO 5
Dividend Preferences
Illustration: In 2019, Mason Company is to distribute €50,000 as
cash dividends, its outstanding ordinary shares have a par value of
€400,000, and its 6 percent preference shares have a par value of
€100,000.
2. If the preference shares are cumulative and non-participating,
and Mason Company did not pay dividends on the preference
shares in the preceding two years:
15-61
ILLUSTRATION 15A.2
LO 5
Dividend Preferences
3.
If the preference shares is noncumulative and is fully participating:
ILLUSTRATION 15A.3
15-62
LO 5
Dividend Preferences
Illustration: In 2019, Mason Company is to distribute €50,000 as
cash dividends, its outstanding ordinary shares have a par value of
€400,000, and its 6 percent preference shares have a par value of
€100,000.
4. If the preference shares are cumulative and fully participating, and
Mason Company did not pay dividends on the preference shares
in the preceding two years:
15-63
ILLUSTRATION 15A.4
LO 5
Book Value per Share
Book value per share is computed as net assets divided by
outstanding shares at the end of the year. The computation
becomes more complicated if a company has preference shares.
ILLUSTRATION 15A.5
Computation of Book Value per
Share—No Dividends in Arrears
15-64
LO 5
Book Value per Share
Assume that the same facts exist except that the 5 percent preference
share are cumulative, participating up to 8 percent, and that dividends
for three years before the current year are in arrears.
15-65
ILLUSTRATION 15A.6
Computation of Book Value per Share—with Dividends in Arrears, Participating
LO 5
GLOBAL ACCOUNTING INSIGHTS
LEARNING OBJECTIVE 6
Compare accounting procedures for equity under IFRS and U.S. GAAP.
EQUITY
The accounting for transactions related to equity, such as issuance of shares,
purchase of treasury shares, and declaration and payment of dividends, are
similar under both IFRS and U.S. GAAP. Major differences relate to
terminology used and presentation of equity information.
15-66
LO 6
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Following are the key similarities and differences between U.S. GAAP and
IFRS related to equity.
Similarities
• The accounting for the issuance of shares and purchase of treasury shares
are similar under both U.S. GAAP and IFRS.
• The accounting for declaration and payment of dividends and the
accounting for share splits are similar under both U.S. GAAP and IFRS.
15-67
LO 6
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Differences
• U.S. GAAP requires that small share dividends (referred to as stock
dividends) should be recorded by transferring an amount equal to the fair
value of the shares issued from retained earnings to share capital accounts.
IFRS is silent on the accounting for share dividends.
• Major differences relate to terminology used, introduction of concepts such
as revaluation surplus, and presentation of equity information.
• In the United States and the United Kingdom, many companies rely on
substantial investments from private investors. Other countries have
different investor groups. For example, in Germany, financial institutions
such as banks are not only the major creditors but often are the largest
shareholders as well.
15-68
LO 6
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Differences
• The accounting for treasury share retirements differs between U.S. GAAP
and IFRS. Under U.S. GAAP, a company has three options: (1) charge the
excess of the cost of treasury shares over par value to retained earnings,
(2) allocate the difference between paid-in capital and retained earnings, or
(3) charge the entire amount to paid-in capital. Under IFRS, the excess may
have to be charged to paid-in capital, depending on the original transaction
related to the issuance of the shares.
• The statement of changes in equity is usually referred to as the statement of
stockholders’ equity (or shareholders’ equity) under U.S. GAAP.
15-69
LO 6
GLOBAL ACCOUNTING INSIGHTS
Relevant Facts
Differences
• Both U.S. GAAP and IFRS use the term retained earnings. However, U.S.
GAAP uses the account Accumulated Other Comprehensive Income (Loss).
Use of this account is gaining prominence within the IFRS literature, which
traditionally has relied on the term “reserve” as a dumping ground for other
types of equity transactions, such as other comprehensive income items as
well as various types of unusual transactions related to convertible debt and
share option contracts.
• The term surplus is generally not used in U.S. GAAP, as the standards do
not allow revaluation accounting. Under IFRS, it is common to report
“revaluation surplus” related to increases or decreases in items such as
property, plant, and equipment; mineral resources; and intangible assets.
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GLOBAL ACCOUNTING INSIGHTS
On the Horizon
As indicated in earlier discussions, the IASB and the FASB have completed
some work on a project related to financial statement presentation. An
important part of this study is to determine whether certain line items,
subtotals, and totals should be clearly defined and required to be displayed in
the financial statements. For example, it is likely that the statement of changes
in equity and its presentation will be examined closely. In addition, the options
of how to present other comprehensive income under U.S. GAAP will change
in any converged standard.
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Copyright
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errors, omissions, or damages, caused by the use of these
programs or from the use of the information contained herein.
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