Dear All,
If I understood Nevenka correctly, we need to clarify two topics regarding Essox balances evaluation:
How should Essox record the loss of control over the real estate in Crimea?
Considering that Essox doesn't have any control over the real estate, and it has already been sold to a third party by the
Soviet Government, Essox needs to remove the real estate from the books. This should be treated not as an impairment
but as a final write-off through the P&L. This cost is equal to the book values and is recognized for tax purposes (booking
account no. 570, following local accounting regulations).
On the other hand, if Essox is entitled to claim from the Soviet Government, and management estimates that the claim is
going to be paid, and if the claim is materially significant, Essox has to disclose that in Notes to the FS as a potential asset in
accordance with IFRS 37 (and the Serbian rule book for micro-entities). It is not allowed to record potential assets in the
balance sheet.
How should Essox record the write-off of loans borrowed from the owner?
The pure release of debt (i.e., the write-off of loans) should be booked as equity (position of "other equity") following IAS 1
and the Serbian rule book for micro-entities as Essox is.
Considering that the entry of funds (such as cash, receivables, financial placements, stocks, or fixed assets) without
(counter) compensation and the obligation to return, as well as the forgiveness of obligations, represent an increase in
economic benefits in the form of owner contributions (i.e., transactions with owners acting in the capacity of the owner), I
believe that on this basis, no income or profits arise either in the P&L Statement or in the Statement of other results. They
are recorded directly in favor of the corresponding capital items.
If you want official confirmation, Essox can ask for an official opinion from the Ministry of Finance RS, which I have already
checked with their representatives.
Also, a debt-to-equity swap is possible via the official procedure of registration of share capital increase. In the end, on a
consolidated basis, it will be neutral, but the mother company will be obliged to write off that financial investment once
Essox is under liquidation.
I will be on a business trip on Friday, but I will try to join the meeting.
Best regards,