Saturday, July 13, 2024
NewsSurplus from accounting transition cannot be dividends: new directive

Surplus from accounting transition cannot be dividends: new directive

A new directive from officials overseeing accounting and auditing activities in the country instructs businesses to keep separate accounts for surpluses or deficits resulting from the transition to the adoption of International Financial Reporting Standards (IFRS).

The ‘directive on how to account for changes resulting from asset revaluation or adjustment upon and following IFRS adoption’ was crafted by the Accounting and Auditing Board of Ethiopia (AABE) under the directorship of Hikmet Abdela. Eyob Tekalign (PhD), a state minister of Finance and chair of the AABE, also signed off on the new directive.

It stipulates that surpluses resulting from asset valuation or adjustment cannot be utilized for capital increase or dividend distribution, as the surpluses are unrealized gains.

The directive instructs any surplus from valuation or adjustment to be maintained or registered as an ‘IFRS adoption re-measurement reserve’ as part of shareholder equity, but separate from distributable retained earnings.

For assets subject to depreciation and impairment, the directive obliges the transfer of annual depreciation and impairments related to the surplus net of tax to retained earnings and availing for capitalization or dividend distribution.

- Advertisement -

For non-depreciable assets, it mandates a transfer to retained earnings and permits capitalization or dividend distribution if the asset is impaired or sold or derecognized.

The directive instructs that if the first-time adoption of IFRS for lease agreements results in the recognition of right of use assets and lease liability, the lease liability should be offset against the right of use asset and the excess asset amount net of tax, if any, should be credited to a non-distributable account, ‘IFRS Adoption Remeasurement Reserve.’

If the reporting entity is a civil society organization, the surplus stemming from asset revaluation or adjustment cannot be used or earmarked for administrative or project costs; nor can it be transferred as a gift to another entity.

[speaker]
- Advertisement -spot_img

Subscribe

- Advertisement -

Popular

More like this
Related

Deadly gold rush: military commanders, former combatants, foreign players scramble for Tigray’s bullion

All contraband roads lead to Dubai The involvement of armed...

Ministry orders Kenticha Mining to surrender license in increasingly tangled investment saga

Shareholder update applauds progress despite Ministry order, pressure from...

Tigray calls attention to refugees caught up in Sudan conflict

Officials of the Tigray Interim Administration (TIA) have raised...

Conflict of Interest legislation dalliance unnerves Anti-Corruption Commission

 Officials at the Federal Ethics and Anti-Corruption Commission are...