Financial Reporting and Ethics - The Institute of Chartered ...

AMALGAMATION, ABSORPTION AND RECONSTRUCTIONsupply information on the arrears of preference dividendas a note, but will not show the dividend in the balancesheet. A liability not represented in the balance sheetneeds to be recognized first and thereafter eliminated onwaiver. Consequently, it has no effect.(c)(d)Where a liability that is not represented in the balancesheet is settled, it will constitute a loss to capitalreduction. The accounting entries are:DR - Capital ReductionCR - Bank/Cash, Shares, Loan Stock or Debenture.Any revaluation surplus or deficit arising from revaluationof asset or investment should be taken to capital reduction.For revaluation surplus, accounting entries will be:DR - Asset / InvestmentCR - Capital ReductionFor revaluation deficit, accounting entries will be:DR - Capital ReductionCR - Asset / Investment(e)(f)(g)Similarly, profit or loss arising from the disposal of assetor investment should be taken to capital reduction.Accounting entries will be:For profit on disposal:DR - Disposal AccountCR - Capital ReductionFor loss on disposal:DR - Capital Reduction AccountCR - Disposal AccountAny accumulated loss shown in the balance sheet shouldbe written off. In this case, the accounting entries wouldbe:DR - Capital Reduction AccountCR - Profit and Loss AccountOrdinarily, a well-formulated scheme should have nobalance in the capital reduction account. However, shouldthere be any, it is expected to be a credit balance (in whichcase interest group has been over tasked) and should beclosed off to Capital Reserve Account. The accountingentries would be:DR - Capital ReductionCR - Capital Reserve53