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balance sheet according to IAS01
01-19-2010, 03:53 PM
Post: #1
balance sheet according to IAS01
Dear Friends,
Anyone can explain the following points in balance sheet according to the IAS 01.

1. Capital stock had been issued for a total consideration of Rs. 1,850,000 the amount received is in excess of par and stated values of the stock being reported as surplus. Capital stock represents 100,000 shares of Rs. 10 each.

2. Loan payable represents a loan from bank that is payable in regular quarterly installments of Rs. 20,000. Interest of Rs. 2,000 accrued on the loan on December 31, 2000 has been recorded in the books.

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01-20-2010, 04:33 AM
Post: #2
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 “Fair presentation” 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 IASB’s Framework. The application of IFRS, with additional disclosure where required, is expected to result in financial statements that achieve a “fair presentation.”

IFRS does not define the term “capital” 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 “equity,” subordinated loans from owners that are in the nature of “equity” and have distinct features of “equity” (i.e., they are noninterest bearing and have no repayment terms specified and thus are long-term in nature) and thus could be considered “residual interest.” 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 “equity.” 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 “capital” both “share capital” and even such owner/shareholder loans as their “true” 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 “capital” for the purposes of running its business and for obtaining financing. In other words, IAS 1 requires disclosure of what an entity’s objectives, policies and processes are for managing “capital” and quantitative data about what the entity regards as “capital.”

Furthermore, in case there are any capital requirements that an entity has to comply with
(say, “minimum capital” 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. Shareholder’s 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,

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01-23-2010, 04:06 AM
Post: #3
Skystar first of all the number one point. Here capital stock refers to share capital. The par value of each share is 10rs. Therefore total par value is 1,000,000Rs. Any excess of consideration over par value is the share premium which amounts to 850,000Rs(1,850,000-1,000,000)
Therefore balance sheet extracts would be
current asset
cash 1,850,000

share capital 1,000,000
share premium 850,000

You have not mentioned quarterly payment dates. Are they 31st march, 30thjune, 30th sept and 31th dec?
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01-23-2010, 12:08 PM
Post: #4
Hi Dard,

Nice explanation. Appreciated.

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