Equity in sole proprietorship entity

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Asnake E
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Equity in sole proprietorship entity

Post by Asnake E »

hi,

Do we have an equity section on the balance sheet of a sole proprietorship entity?
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Marek Muc
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Re: Equity in sole proprietorship entity

Post by Marek Muc »

Hi , is this even a separate legal entity ? Does it produce financial statements?
Asnake E
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Re: Equity in sole proprietorship entity

Post by Asnake E »

Yes. It is a legal entity (the owner is holding commercial registration, business license and tax registrations in his name) and is required to produce financial statements complying with IFRS. But as per the Commercial Code the the owner and the business are not separate.

Please note that Ethiopia has adopted IFRS recently and businesses are producing their first IFRS financial statements.
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Marek Muc
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Re: Equity in sole proprietorship entity

Post by Marek Muc »

Tough one, probably more of a legal analysis. I'm shocked that this kind of entity is required to report under IFRS.

Is there any defined equity in commercial code?

If not, the equity may be shown as an item corresponding to transactions with owner in his capacity as owner. Eg. When he contributes an asset, the credit goes to equity. But this all is ill-conceived as IFRS are not meant for such entities
Asnake E
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Re: Equity in sole proprietorship entity

Post by Asnake E »

In our case the IFRS adopting entities are classified as public interest entities (financial institutions), government entities and those who meet the quantitative threshold (any two of: Annual sales exceeding USD 1.7 million, having employees exceeding 100, total assets exceeding USD 3.3 million and total liabilities exceeding USD 3.3). In the quantitative threshold classification, the legal status of the entities is not considered.

The Commercial Code explicitly defines only share capital as equity.
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Marek Muc
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Re: Equity in sole proprietorship entity

Post by Marek Muc »

Ok so if share capital is defined in the commercial code , then you shouldn't have any issues with equity under IFRS right? Share capital , other contributions , retained earnings and so on
Asnake E
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Re: Equity in sole proprietorship entity

Post by Asnake E »

Yes.
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