Disposal of long-term investments in the annual report
Disposal of long-term investments in the annual report
IThe disposal of long-term investments – the sale or liquidation of fixed assets, intangible assets or financial investments – is often perceived as a technical transaction in accounting. At first glance, it may seem that regardless of how the costs associated with the transaction are classified, the overall impact on the company’s result – profit or loss – does not change. However, in the preparation of financial statements, not only the final result is important, but also how this result is formed, how it is structured and how information about the transaction is disclosed in the financial statements.
In practice, questions often arise regarding the presentation of costs associated with long-term investment disposal transactions, such as brokerage commissions, legal, notarial or transportation expenses. From a mathematical point of view, the classification of these costs does not change the company’s overall result for the reporting period, however, an inconsistent approach to accounting for income and expenses can make it difficult for users of financial statements to correctly assess the economic nature of the transaction. In addition, the financial reporting structure requires that the result of a disposal transaction is presented in the income statement (PZA) at net value, while detailed information about the components of the transaction is disclosed in the notes to the financial statements.
Identification and consistent presentation of disposal-related costs in accounting records and financial statements is essential so that auditors, investors, credit institutions, supervisory authorities and other users of financial statements can understand what the specific costs relate to and how they affect the disposal result. If disposal-related costs are included in, for example, administrative expenses in one reporting period, and in other operating expenses in another, the disposal result and cost structure become difficult to compare.
At the same time, such inconsistency also affects the company's internal analytics.
Read the full article on iFinanses
In practice, questions often arise regarding the presentation of costs associated with long-term investment disposal transactions, such as brokerage commissions, legal, notarial or transportation expenses. From a mathematical point of view, the classification of these costs does not change the company’s overall result for the reporting period, however, an inconsistent approach to accounting for income and expenses can make it difficult for users of financial statements to correctly assess the economic nature of the transaction. In addition, the financial reporting structure requires that the result of a disposal transaction is presented in the income statement (PZA) at net value, while detailed information about the components of the transaction is disclosed in the notes to the financial statements.
Identification and consistent presentation of disposal-related costs in accounting records and financial statements is essential so that auditors, investors, credit institutions, supervisory authorities and other users of financial statements can understand what the specific costs relate to and how they affect the disposal result. If disposal-related costs are included in, for example, administrative expenses in one reporting period, and in other operating expenses in another, the disposal result and cost structure become difficult to compare.
At the same time, such inconsistency also affects the company's internal analytics.
Read the full article on iFinanses