Sole Proprietorship business

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Asnake E
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Sole Proprietorship business

Post by Asnake E »

Greetings

As I told you earlier in our country IFRS is applicable to soleproprietorship businesses. And it is known that the owner and the soleproprietorship business are not separate legally.
My question: Can the investment of the owner of a soleproprietorship entity in another company's (investee's) shares considered as the investment of the soleproprietorship entity? Would the financial statements of the investee consolidated with the financial statements of the soleproprietorship?
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Marek Muc
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Re: Sole Proprietorship business

Post by Marek Muc »

Hi, this is a more general question: how do you set the boundaries between the owner and its private estate and the reporting entity? I think you need to think it through, come up with a clear answer and then apply it to all assets and liabilities. It does not matter whether this is a real estate or shares. IASB had a discussion on this topic while working on the conceptual framework. Google the phrase "boundary of the reporting entity in IFRS" and see whether you'll find something useful :)
Asnake E
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Re: Sole Proprietorship business

Post by Asnake E »

Thank you. I will google and try to get a definitive answer
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Marek Muc
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Re: Sole Proprietorship business

Post by Marek Muc »

don't expect a definitive answer! :)
Asnake E
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Re: Sole Proprietorship business

Post by Asnake E »

That means I am in a real big trouble. Am supposed to take a big decision on one IFRS conversion support project that I am undertaking for a sole business
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Marek Muc
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Re: Sole Proprietorship business

Post by Marek Muc »

Were there any boundaries between the owner and its business under previous local GAAP? You could use the same approach for IFRS conversion
Asnake E
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Re: Sole Proprietorship business

Post by Asnake E »

There is no legal boundary in case of risk, i.e the owner bears unlimited liability in relation to the business.

And in other cases, it is hard to tell that whether there are boundaries or not. But wouldn't it be appropriate to consider the substance than the legal form?
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Marek Muc
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Re: Sole Proprietorship business

Post by Marek Muc »

Risk doesn't matter here. How do you tell whether an asset should be included in entity's financial statements under current GAAP?
Asnake E
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Re: Sole Proprietorship business

Post by Asnake E »

I thank you for your responses.

In the local GAAP there was more inclination to the legal requirements not in the relavance of the financial information produced by the entity. For assets to be included in the entity's financial, the asset should be in the name of the entity, not in the name of the proprietor
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Marek Muc
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Re: Sole Proprietorship business

Post by Marek Muc »

And I think this is the right direction. You asked about shares in another entity (say entity X) held by the owner (say Mr Smith). I don't think they should be treated as an asset of entity A merely because it is also owned by Mr Smith. It is Mr Smith who eg receives dividends from X and will benefit from the sale of shares to some third party, not entity A.

See also this topic:
viewtopic.php?f=6&t=99
Asnake E
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Re: Sole Proprietorship business

Post by Asnake E »

Thank you. Your reasoning is very persuasive.

I really appreciate your assistance.
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