financial accounting standards 21

indonesian institute of accountants

equity accounting

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statement of financial accounting standards (sfas) no. 21, equity accounting, was adopted by a
meeting of the indonesian accounting principles committee on august 24, 1994 and was
ratified by the national council of the indonesian institute of accountants on september 7,
1994.

compliance with the policies contained in this statement is not obligatory in the case of
immaterial items.

jakarta, september 7, 1994

national council
indonesian institute of accountants

indonesian accounting principles committee

hans kartikahadi chairman

jusuf halim secretary
hein g. surjaatmadja member
katjep k. abdoelkadir member
wahjudi prakarsa member
jan hoesada member
m. ashadi member
mirza mochtar member
ipg ary suta member
sobo sitorus member
timoty marnandus member
mirawati soedjono member

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 financial accounting standard

equity accounting

contents

paragraph

introduction
objective 01 - 04
scope 01
definitions 02 - 04

explanation 05 - 08
legal form and equity of enterprises 05
classification of financial instruments 06 - 08
liabilities 06
equity 07 - 08

statement of financial accounting standard 21

equity accounting 09 - 45
equity accounting for non-limited liability enterprises 10
equity accounting for limited liability enterprises 11 - 45
elements of paid in capital for limited liability enterprises 12
recording paid-in capital for limited liability enterprises 13
recording reductions in paid-in capital for
limited liability enterprise 14 - 17
capital stock reacquisition and retirement in a limited
liability enterprise 18 - 21
stock reacquisition under cost method 18 - 19
stock reacquisition under par value method 20
donated treasury stock 21
dividends from limited liability enterprises 22 - 24
dividend distribution 22
stock dividends 23
conversion of the premium on capital stock to capital
stock 24
presentation and disclosure 25 - 42
presentation of capital 25 - 31
presentation and disclosure of retained earnings 32 - 34
disclosure of events subsequent to balance sheet date 35
disclosure of types of shares 36
disclosure of limited liability enterprise loss amounting
to 50% of capital 37
disclosure of limited enterprise loss amounting
to 75% of capital 38 - 39
dividend disclosures 40

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treasury stock disclosures 41
disclosure of other equity items 42
reorganization 43
revaluation difference 44
effective date 45

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equity accounting sfas no.21

introduction

objective

equity represent the interest of the owners of an enterprise, should be reported in such a
manner that provides adequate information on its sources clearly and presented in accordance
with statutory regulations and establishment deeds.

scope

01 this statement covers:

(1) state-owned enterprise (bumn)

(2) private enterprise, and

(3) cooperatives in accordance with indonesian statutory regulations.

definitions

02 equity represents the interest of the owner of an enterprise which is the difference
between total assets and total liabilities, and accordingly, does not represent a measurement of
the sale price of an enterprise.

03 in essence, equity originates from: investment by owners and earnings of the enterprise.
reduction in equity result primarily from withdrawals by the owners, income distributions or
losses.

04 equity consist of the owner’s contribution which are frequently referred to as capital or
initial membership savings in cooperative, retained earnings and other elements.

explanation

legal forms and equity of enterprises

05 the legal form and equity of an enterprise are as follows;

5.1. state owned enterprises (bumn/)

based on its legal form and equity, state owned enterprises can be differentiated as
follows:

(a) perusahaan jawatan (perjan)

as a state owned enterprise, perusahaan jawatan’s capital is an integral part of the

state budget (anggaran pendapatan dan belanja negara/ apbn).

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equity accounting sfas no.21

(b) perusahaan umum (perum)

as a state owned enterprise, perusahaan umum’s paid-in capital represents the

nation’s wealth which is separate from the state budget and does not consist of
shares.
from an equity standpoint, except for capital which does not consist of shares, the
classification and presentation of capital shares is the similar to that of a pt
(persero).

(c) pt (persero)

pt (persero) is a state owned enterprise with limited liability where of majority the
shares are owned by the state. from an equity standpoint, there is no difference
between pt (persero) and a limited liability enterprise.

(d) in addition to those state owned enterprise mentioned, there is a perusahaan

negara (pn), which is particularly established by an incorporation statutory
regulation, which also determines the capital.

(e) perusahaan daerah is an enterprise with capital that is separate from the district
budget (anggaran pendapatan dan belanja negara).

5.2. private enterprise

based on its legal form and equity, a private enterprise can take in the following
forms:

(a) sole proprietorship

a sole proprietorship is not a legal entity and its capital is not consist of shares. the
personal assets of the owner are tied to sole proprietorship’s individual liabilities.

(b) partnership
a partnership is not a legal entity and its capital does not consist of shares.

(c) firm
a firm’s capital does not consist of shares, and the firm’s partners have the
ultimate responsibility for the firm’s liability.

(d) commanditaire vennootschap (cv)

a cv’s capital should be classified into between active partner’s capital and the
limited partner’s capital. the active partner is the partner who actively manages
the cv. a limited partner does not actively manage the cv, and is only responsible
for its portion of capital in the cv.

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(e) limited liability enterprise (pt)

a limited liability enterprise’s capital consist of shares. its shareholder’s
responsibility is restricted to the paid in capital amount provided the enterprise has
officially been recognized by the minister of justice.

5.3. cooperative

a cooperative is a legal entity. the main capital of a cooperative is made up of initial

membership savings, which are similar to registered stocks, nontransferable, but can be
withdrawn when the member leaves the cooperative. a cooperative’s equity, or net
assets, consists of initial membership savings, other savings, loans, and undistributed
operating results including the restricted fund..

classification of financial instruments

liabilities

06 classification of financial instruments is determined by the substance of contractual

arrangements on initial recognition. when the initial transfer of a financial instrument contains
the contractual obligation to transfer cash or its equivalents in the future, the instrument is
classified as a liability.

equity

07 when the folder of a financial instrument does not have the future financial claim to the
issuer but has a proportional claim to dividends or distributions based on equity, the
instrument is classified as equity.

financial instruments that contain no provision to enforce a financial claim when the
enterprise is in difficult times, are classified as equity instruments.

08 financial instruments which cannot be classified as liabilities are classified as a part of

equity.

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equity accounting sfas no.21

statement of financial accounting standard 21

equity accounting

statement of financial accounting standard 21 consists of paragraphs 9-45. this statement

should be read in the context of paragraphs 1- 8.

09 equity represent the interest of the owners of an enterprise should be reported in such a
manner that it provides adequate information on its sources clearly and presented in
accordance with the statutory regulations and establishment deeds.

in essence, disclosure of the elements of equity is expected to clearly identify paid-in capital,
retained earnings, difference resulting from the revaluation of fixed assets, and donated
capital. detail of each item is permitted as long as it does not contradict this statement.

equity accounting for non-limited liability enterprises

10 accounting for equity of a non-limited liability enterprises should be reported in

accordance with the current regulations applicable to the entity and the current financial
accounting standards applicable specifically for the industry, such as cooperatives.

equity accounting for limited liability enterprises

11 capital stock includes preferred stock, common stock and additional paid-in capital
accounts. other capital items, such as donated capital, may be presented as part of additional
paid-in capital.

elements of paid-in capital of a limited liability company

12 additional paid-in capital accounts consist of various capital addition element, such as:
premium on capital stock, addition to capital resulting from stock reacquisition at a price
which is lower than the amount received at issuance, additions to the capital resulting from
sales of treasury stock at a price which is higher than the amount paid when acquired,
additions to capital resulting from the difference in paid-in capital rates and the like.
additional paid-in capital accounts may not be debited or credited for operating profit or loss,
nor for extraordinary profit or loss.

recording additional paid-in capital for limited liability enterprises

13 additional paid-in capital is recorded based on:

(a) amount of money received;

(b) for capital contributions in the form of cash, based on actual transactions. for stock
denominated in rupiah in the establishment deed, the capital contribution in the form of
foreign currency in valued based on the exchange rate at the payment date.

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equity accounting sfas no.21

for stock denominated in foreign currency in the establishment deed, capital

contributions either in rupiah or foreign currency should be translated to the foreign
currency stipulated in the establishment deed based on the official rate at the payment
date, unless the establishment deed or government regulations require the use of fixed
rate. the foreign exchange rate differences related to capital transactions should be
recorded as a part of capital in the “foreign exchange rate difference on paid-in capital”
account and not as an element of profit or loss.

(c) the amount of receivables arising from, or payables converted into capital;

(d) for stock dividends, it is based on the fair value of the stock, which is the fair market
value at the transaction date for a listed enterprise, or the value agreed to by the
shareholders for stock when there is no established fair market value.

e) the fair value of assets other than cash received.

f) for capital contributions in the form of goods, it is based on the fair value of assets and not
cash contributed. the fair value is the appraisal value at the transaction date which has
been approved by the board of commissioners for a listed limited liability enterprise, or
the value that is agreed to by the board of commissioners and the contributor of the goods

recording reductions in paid-in capital for limited liability enterprises

14 reductions in paid-in capital are usually recorded based on:

(a) the amount of money paid; or

(b) the amount of liability that arises; or

(c) the value of the assets other than cash distributed

15 the issuance of stock is recorded at the nominal value. when the amount received from
the issuance of stock is higher than its nominal value, the difference is recorded in the
“premium on capital stock” account.

16 if current regulations allow for the reacquisition of stock, the transaction should be
recorded by debiting the “ capital stock” account and crediting the “ treasury stock” account at
the reacquisition date.

17 stock issued in connection with contributions of capital in the form of assets other than
cash or for services performed, is generally valued at the fair value of the assets/services or
the fair value of the stock, whichever is more objectively determinable.

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capital stock reacquisition and retirement in a limited liability enterprise

stock reacquisition under the cost method

18 when an enterprise reacquires previously issued shares, the difference between the
reacquisition cost and the original issuance price is not recognized as income or loss.
reacquisition of an enterprise’s previously issued stock can be accounted for using the cost
method or par value method. under the cost method, the treasury stock is recorded at
acquisition cost and presented as a reduction from capital.

19 treasury stock is recorded at acquisitions cost and presented as a reduction from the
“capital stock” account, for similar types of shares, in both number of shares and nominal
value. the difference between the acquisition cost and nominal value is presented as a
reduction from or addition to the “premium on capital stock” account, and is presented by
type of shares and rupiah, under the caption “addition to (deduction from) premium on capital
stock resulting from treasury stock”. when a deficit arises in the premium on capital stock
account as a result of reacquisition transactions , this deficit should be charged to retained
earnings.

stock reacquisition under par value method

20 the or par value method is usually applied when the treasury stock will be reissued in
the future. under the par value method, the treasury stock is accounted for at par value and
presented as a reduction of “capital stock” account. if the treasury stock had originally been
issued at a price above par value, the “premium on capital stock” account should be debited
for the related premium on treasury stock.

any excess paid over the original issuance price is debited to retained earnings. if the amount
paid for treasury stock is less than the original issuance price, the difference is considered an
addition to capital and is recorded by crediting the “ paid -in capital resulting from treasury
stock” account. this method is usually applied when the reacquisition is intended to retire the
stock.

donated treasury stock

21 treasury stock through donations is accounted for the issuance price by debiting the
“treasury stock” account and crediting the “donated capital” account. when the stock is sold,
the difference between the recorded amount and the sale price is included in the “donated
capital” account.

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dividends from limited liability enterprises

dividend distribution

22 an enterprise’s obligation to distribute dividends arises at the declaration date. on this

date, retained earnings is charged for the dividend amount. the obligation is usually classified
as a current liability. when dividends are distributed in form of assets other than cash, retained
earnings is debited for the fair market value of the assets distributed. the basis for recording
the dividend distribution in the form of an assets other than cash and stock dividends should
be disclosed in the notes to the financial statements.

stock dividends

23 dividend distributions include stock dividends originating from retained earnings. the
distribution of stock dividends is the distribution of retained earnings to stockholders, which
are reinvested in the form of paid-in capital. the distribution of stock dividends is recorded at
the fair value of the stock for a listed enterprise, or at a price determined in the establishment
deed for an unlisted enterprise which have been approved by the shareholders and is in
compliance with the current regulations.

conversion of the premium on capital stock to capital stock

24 the conversion of the premium on capital stock to capital stock is classified as “paid-in
capital” at nominal value. the conversion of the premium on capital stock to capital stock
should not be classified as dividend distribution.

presentation and disclosure

presentation of capital

25 the presentation of capital in the balance sheet should conform to the articles of
incorporation and other current regulations as well as reflect financial reality.

26 authorized capital, paid in and issued capital, nominal value and number of shares for
each classification of stock should be disclosed in the balance sheet.

27 when there is more than one classification of stock, the preferential rights of one
classification of stock over dividends and settlement of capital in liquidation should be
disclosed in the notes to the financial statement.

28 when there are dividends in arrears relating to cumulative preferred stock, the dividends
in arrears for each classification of stock and the total amount of dividends in prior periods
should be disclosed in the notes to the financial statements.

29 changes in capital in the current year should be disclosed in the notes to the financial
statements.

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equity accounting sfas no.21

30 capital is presented in the balance sheet after liabilities. the form of presentation should
conform to the articles of incorporation, for instance, stock is the capital contribution that
represents ownership in a limited liability enterprise.

31 for a listed enterprise, stock may be issued on subscription. under this approach, the
stock will be issued only when the subscriber pay in full for the stock. upon receiving
subscriptions, the “subscription receivable” account is debited and the “capital stock
subscribed” account is presented in the equity section after “capital stock” account.

the “subscribed receivable” account reflecting the remaining subscription price that has not
been received is usually presented as current asset. when the enterprise does not expect to
collect the amount in the near future, this account is presented as a reduction of the “capital
stock subscribed” account.

when the subscription are collected in full, the “capital stock subscribed” account is debited
and the “capital stock” account is credited. when a subscriber fails to make a remaining
payment when due, the enterprise, depending on the enterprise policy and statutory regulation,
may take one of these actions:

(a) return the amount received;

(b) return the amount received less a certain amount;

(c) declare the full amount received as an addition to capital and present the amount as an
addition to capital arising from the cancellation of stock subscriptions;

(d) issue the subscriber with shares equal to the amount received.

presentation and disclosure of retained earnings

32 retained earnings reflect the accumulation of period operating results after taking into
consideration dividend distributions and prior adjustments of profit or loss. this account
should be presented separately from the “capital stock” account. all retained earnings are
considered available for distribution as dividends, unless they are restricted such as
appropriation for plant expansions or to fulfill statutory regulations or other commitment.

restricted retained earnings are recorded in a separate account reflecting the purpose of the
appropriation. these restrictions should be disclosed in the notes to the financial statements.

33 retained earnings should not be charged or credited with items which should be included
in the current year’s income statements.

34 disclosure of retained earnings should include:

(a) disclosure of appropriation and separation of retained earnings, explanation the type of
appropriation and segregation, the purpose as well as amount of appropriation and
segregation. the changes in the appropriation and segregation accounts should also be
disclosed.

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(b) legal requirements, contractual obligations, limitations and other restrictions relating to
retained earnings should be disclosed. for example, as long as a credit agreement is
outstanding, an enterprise is not allowed to distribute retained earnings without the
creditor’s permission.

(c) change in retained earnings as a result of a business combination recorded under the
pooling-of-interest method.

(d) prior period adjustment, either gross or net after income taxes. disclosure should be
made by explaining the error in the prior period financial statements, the effect of
adjustment on operating profit, net income and earnings per share.

(e) dividend amounts, dividend per share, and retained earnings restricted from dividend
distribution.

(f) dividends in arrears, both in total and amount per share.

(g) dividend declaration after the balance sheet date, but before issuance of the financial
statement.

(h) stock dividends and stock-splits, capitalized amounts and restatement of earnings per
share to allow for comparability of financial statements.

disclosure of events subsequent to balance sheet date

35 significant events occurring subsequent to the balance sheet date should be disclosed in
the notes to the financial statements, such events include significant sale of stocks, dividends
declared subsequent to the balance sheet date but before the independent auditor’s report date,
recapitalization, and other capital transaction.

disclosure of types of shares

36 information on each type of share should be disclosed separately in the notes to the
financial statements, and include:

- authorized capital;
- issued or subscribed capital not yet paid;
- paid-in capital;
- par value, nominal value per share;

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- changes in the numbers of shares for each type of shares and the rupiah value for each type
of share during the accounting period;
- preferential rights or privileges;
- special limitations, and;
- explanations on conversions and the conversion rate.

disclosure of limited liability enterprise loss amounting to 50% of capital

37 when an enterprise suffers a loss up to 50% of its capital, the requirement to announce
the loss in court of justice register and state gazette should be disclosed in the notes to the
financial statements as long as the relevant laws are still applicable.

disclosure of limited liability enterprise loss amounting to 75% of capital

38 when an enterprise suffers an accumulated loss amounting up to 75% of its capital, an

explanation that the enterprise is in substance dissolved should be disclosed in the notes to the
financial statements as long as the relevant laws are still applicable.

39 when the minimum capital requirement established by current regulations or articles of

incorporation cannot or have not been met, this situation should be disclosed. for example, the
minimum paid-in capital requirement and number of shareholders for a listed limited liability
enterprise.

dividends disclosure

40 dividends disclosure consists of:

- dividend amount;
- dividend per share;
- form of dividend;
- minimum retained earnings balance in relation to dividend payout;
- dividend payable;
- dividend payable per share;
- declaration of dividend subsequent to the balance sheet date, but before the independent
auditor’s report date;
- amount of stock dividend capitalized and stock-split, both in total amount and per share;
and
- earnings per share should be restated based on number of equivalent shares issued after the
stock-split for comparability.

treasury stock disclosures

41 disclosure of treasury stock includes:

- treasury stock recorded under the cost method is presented as a reduction of capital. the
number of treasury shares held by the enterprise should be disclosed.

- treasury stock recorded under the cost method is presented as a reduction from paid-in

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capital for each type of share. the difference between reacquisition cost and nominal value
is added to or deducted from the related premium on capital stock. the number of treasury
shares held by the enterprise should be disclosed.

disclosure of other equity items

42 disclosure of other equity items (such as retained earnings, premium, difference

resulting from revaluation of fixed assets) should be made separately and include:

- changes during the accounting period; and

- distribution restrictions.

reorganization

43 quasi reorganization is a procedure to readjust equity when an enterprise experience

contained losses and has a material amount of deficit. this action should be based on the
formal decision of stockholders. under a quasi reorganization, an enterprise is allowed to
apply a new basis of accounting to record certain assets at fair values which are lower than
their book values by debiting the “deficit” account and reducing the nominal value of
common stock. this adjustment to equity should be disclosed in the notes to the financial
statements.

revaluation difference

44 in accordance with sfas no. 16, fixed assets and other assets, the revaluation of fixed
assets is generally not permitted because financial accounting standards adhere to acquisition
cost as a basis for valuation. an exemption is allowed when valuation is based on government
regulations. when this is the case, the financial statement should explain the variation from
acquisition cost concept in presenting fixed assets and its effect to the enterprise’s financial
position. the difference between the revaluation amount and the carrying amount of fixed
assets is presented in the equity section between additional paid-in capital and retained
earnings under the account as “different resulting from revaluation of fixed assets”.

effective date

45 this statement becomes effective for financial statements covering periods beginning on
or after january 1, 1995. earlier application is highly recommended.

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