Reserves

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Khanyifiso7130
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Joined: 03 Dec 2020, 17:42

Reserves

Post by Khanyifiso7130 »

The holding company transferred assets worth R6 million and liabilities worth R4 million to it's newly established subsidiary company. In IRFS terms, and when presenting the AFS, what terminology do i give the difference of R2 million ?. On the face of SOFP, i cannot name this difference "net asset value", but what name do i allocate to this difference of R2 million other than distributable and non-distributable reserves ?.
JRSB
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Re: Reserves

Post by JRSB »

Capital contribution in equity?

Distributable reserves would be a matter for company law.
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JRSB
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Re: Reserves

Post by JRSB »

Accounting for capital contributions by the recipient

A capital contribution should not be included in profit or loss for the period, nor within other comprehensive income. Instead, it should be presented in the statement of changes in equity (i.e. similar to the proceeds of a share issue). This is because the increase in shareholders’ funds is not ‘income’ as defined in the Conceptual Framework. The Conceptual Framework defines income as follows. [CF:4.68]

“Income is increases in assets, or decreases in liabilities, that result in increases in equity, other than those relating to contributions from holders of equity claims.”

Therefore, income cannot result from ‘contributions from holders of equity claims’.
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thalin
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Joined: 18 Aug 2021, 13:50

Re: Reserves

Post by thalin »

How about the accounting treatment for the subsidiary? Can the Sub creates a separate reserve account to record the contribution from the Parent or credit to share premium account?
JRSB
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Re: Reserves

Post by JRSB »

The above refers to the subsidiary. If assets are contributed there's no impact to shares so I wouldn't suggest adjusting share premium, so just 'other reserve' or similar.
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thalin
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Re: Reserves

Post by thalin »

How about contribution in cash or in a form of non-repayable & interest free loan? What would be your suggestions?
JRSB
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Re: Reserves

Post by JRSB »

It doesn't make a difference if it's in cash or assets or other benefit given, but there is a distinction as whether it is a loan or not. 'non-repayable interest free loan' is a strange idea to me but in effect that's the same as a cash contribution... Clearly there's no way you could have that in creditors so there's not much other choice in any case...
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