student of the 4th year of economics faculty
National University of Ostroh Academy
Scientific supervisor : Kharchuk Yuliya Yurievna
associate professor of finance, accounting and audit department
Features of the organization of accounting of equity capital of enterprises of Ukraine and directions for its improvement
Abstract. The article deals with the theoretical and practical aspects of accounting of equity capital of enterprises, stressed the importance of its timeliness and reliability. Characterized structural elements of equity capital. Also highlighted the main problems of accounting of equity capital and suggested solutions.
Keywords: equity capital, structural elements, automation, revaluation, normative regulation, European integration.
Анотація. У статті розкрито теоретичні та практичні аспекти організації обліку власного капіталу підприємства, наголошено на важливості його своєчасності та достовірності. Охарактеризовано структурні елементи власного капіталу. Також висвітлено основні проблемні аспекти обліку власного капіталу та запропоновано шляхи їх вирішення.
Ключові слова: власний капітал, структурні елементи, автоматизація, переоцінка, нормативне регулювання, євроінтеграція.
Formulation of the problem. Equity capital is the basis for the establishment and development of the enterprise. In the process of functioning, it ensures the interests of the state, owners and personnel. Any organization conducting industrial or other commercial activities must have a fixed capital.
Equity accounting is an information base to reflect such characteristics of the enterprise as the availability of funds, the creditworthiness of the enterprise, financial stability, solvency. Efficient use of equity capital, on one hand, helps maximize the equity return, on the other hand, helps not to lose financial sustainability and remain solvent. Therefore, the rational organization of equity accounting is a guarantee of obtaining reliable and necessary information about the capital of the enterprise.
The analysis of recent studies and publications. The problems of accounting of formation and change of equity are studied in the works of many leading economists such as: M.D. Alekseenko, F.F. Butinets, S.F. Heads, gg Kiiretsev, MM Mosiuchuk, OI Pilipenko, I.R. Polishchuk, MS Pushkar, N. M. Tkachenko V.V. Sopko
However, there are aspects that require detailed study and solution of existing problems.
Presentation of the main material.The purpose of the study is to expound on the peculiarities of the equity capital accounting and determine the ways of its improvement on the basis of generalization of theoretical and evaluation of practical aspects of selected topics.
Presentation of main material. Equity capital is one of the most significant and important elements of the company, for it is the basis and guarantee of the organization of different kinds of business ownership and organizational and legal forms. Any organization or enterprise conducting industrial or other commercial activities must have a fixed capital necessary for the conduct of its economic activity. It is the basis for the establishment and development of the enterprise.
Mobilized by the founders of the enterprise from different sources of capital owned by them and owned by the enterprise as a result (by ownership or economic jurisdiction) as a legal entity, becomes the owner’s equity of the entity.
According to Ukrainian Accounring Standards 1 “General Requirements to Financial Statements”, equity is the difference between assets and liabilities of an enterprise . The legal basis for organizing documentary registration of equity capital is clearly regulated by the Laws of Ukraine, resolutions of the Cabinet of Ministers, orders of ministries, departments, and state tax administration.
The proportion between capital and liabilities in different enterprises is not
the same. The greater the share of equity in the assets of the enterprise is, the higher its independence will be. Equity is the basis for the enterprise’s activities. It shows the degree of independence and the influence of its owners on the company.
In accordance with the current National Accounting Standards (Standard) 1 “General Requirements for Financial Statements”, equity includes the following structural elements:
- recorded (share) capital;
- capital in additional valuations;
- additional capital;
- reserve capital;
- unallocated profit (uncovered loss);
- unpaid capital;
- withdrawn capital .
Equity capital is the provision of such costs and payments, which are created at the expense of the enterprise and serve as a guarantee of covering some of its expenses:
- provision of personnel payments (creation of a reserve);
- other security (warranty repair, etc.);
- targeted financing.
A common view is that the share of equity should be 50% or more. Only in this case, according to creditors, the company is more likely to repay its obligations at its own expense. Therefore, maintaining capital at this level is a priority of the enterprise.
The main purpose of the organization of equity capital accounting is to support the system of financial management in decisions on its preservation and provision of effective control over the formation of sources of its own funds.
The objects of organization of equity capital accounting are the initial stage, current and generalizing, and the objects of each stage are nomenclatures, carriers of nomenclature, their movement and maintenance .
An important means of controlling the correct formation and use of the company’s equity is the continuous registration of data on all business transactions in the documents. However, most of the equity accounting operations do not have developed and approved forms of primary documentation.
The primary documents of operations on accounting of own capital are accounting statements, which are compiled in a free form. General requirements for primary documents, accounting registers and financial statements are set forth in the Provisions on the Documentary Provision of Accounting Records .
The organization of initial accounting begins with the study of the composition of the accounting nomenclature. Primary equity accounting characterizes the moments of the investment process (contributions, acquiring rights, etc.) or the choice of leaving the company, covering losses, etc.
Current account means the processing, registration and recording of primary accounting data, ie information carriers, registers, grouping and regrouping them in order to obtain the necessary result information . The main carriers of current equity accounting are the registers of analytical accounting of objects and synthetic accounting for accounts, sub-accounts and signs, generalization levels.
The organization of the summary (generalizing) accounting begins with the identification of the composition of the accounting nomenclature, which should be reflected in the corresponding final account information. Accounting nomenclatures for generalizing the equity capital accounting are formed in accordance with the generalized data of the balance sheet of the reporting period, indicators of economic, financial, statistical and tax reporting. Other carriers of generalizing accounting are different accumulation data, tables, in which the summary data for the management needs and compilation of various forms of reporting are formed.
Information about capital is provided in Form No. 1 “Balance” (Statement of financial position), Form No. 4 “Statement of Equity” and F-5 “Notes to the Annual Financial Statements”.
In order to summarize the information on the equity of the enterprise, the accounts of grade 4 “Equity and liabilities” are used in accounting, namely:
- 40 “Registered (share) capital”;
- 41 “Capital in surplus”;
- 42 “Additional capital”;
- 43 “Reserve capital”;
- 44 “Retained earnings (uncovered losses)”;
- 45 “Seized Capital”;
- 46 “Unpaid capital” ;
Under conditions of automated processing information each of these accounts and their subaccounts is recorded in electronic registers, analytical tables, analysis of calculations.
For accounting of own capital the Journal № 7 is used. For accounting of attracted capital in the form of loans – Journal number 2 is used.
It is the right construction of analytical and synthetic accounting that provides reliable data on equity, through which the company can take effective managerial decisions.
However, at present, there are a number of problems and inaccuracies in accounting for equity, which need to be addressed.
In particular, the use of automatical tools can almost completely solve the problem of accuracy and efficiency of information. Computer accounting programs increase the efficiency of keeping the enterprise’s equity capital accounting, increase its level of detail, and increase control over the reliability and accuracy of accounting information at all stages of its processing.
However, it should be noted that the
problem of capital add-ons remains rather complicated because asset revaluation
is a complex and multilevel process which complexity is in the fact that it
requires rather time-consuming calculations at all stages of its
implementation: ranging from the reasonableness of the decision to hold
revaluation to determination of its final results. An important point is
automation of revaluation calculations, which can be done using even the
Microsoft Excel program. However, Microsoft EXCEL itself is still not good
enough for proper accounting at the enterprises .
Regarding the consideration of equity through the prism of International Accounting Standards, there is no special IFRS (International Financial Reporting Standards) that deals with issues of accounting and reporting in equity transactions, but some issues on this topic are dealt with in Interpretations issued by the International Financial Interpretation Committee reporting – IFIC 17 “Payments of non-cash assets to owners”.
According to the IFRS, the equity of an enterprise should be grouped and, according to domestic standards, detailed, allowing it to accurately reflect equity components in the reporting.
The composition of financial statements
for Ukrainian Accounting Standards 1 “General requirements for financial
statements” is almost entirely consistent with the structure of financial
statements in accordance with IAS 1 “Presentation of Financial
Statements” . However, given that IAS 1 does not define well-defined
forms of financial reporting and, for the purpose of compiling them, the
companies use the forms defined by the Ukrainian Accounting Standards 1, there
are some contradictions.
In our opinion, in the balance sheet (Financial Statement Report), it is inappropriate to show contributions to the unregistered share capital as part of the registered (share) capital, since in case of refusal to register it, the contributions will be returned to the founders of the enterprise without the consent of the creditors. We believe that for the purpose of European integration and improvement of cooperation with foreign countries, it is necessary to implement the transition to the International Financial Reporting Standards at the state level or to harmonize national standards, which will facilitate the work of accountants of enterprises and make domestic enterprises more attractive to foreign investors.
In addition, in the context of increasing European integration and transformation of market processes in the Ukrainian economy, the use of foreign experience, in particular in accounting for the company’s own capital, is becoming increasingly relevant.
In Germany, companies are prone to long-term financing (external through bank loans, domestic through pension schemes). In recent years, the average German share of own funds in the total assets has not exceeded 20%.
In the UK, the Czech Republic, there are no accounts designed to account for additional capital, due to the level of economic development of countries.
In the UK, as in most developed Western countries, such organizational and legal forms of enterprises prevail as corporations and partnerships. This indicates the predominance of the share of investments in equity capital (therefore, equity is considered as borrowed by the firm and should be repaid in the future).
In the United States and Japan, equity
and affiliate capital is reflected within the actual paid, due to the fact that
the debt item of shareholders (founders) is absent. In case of insufficient
payment of shares, contingent liabilities for collected cash assets are
disclosed in explanations.
There remains an unresolved issue regarding the methodology for conducting an analysis of operations with equity and assessing the financial condition of an enterprise, since in each country there are different components of equity, there are different approaches to the application and normative value of the coefficients of autonomy, financial dependence, etc. This is due to the peculiarities of regulatory accounting regulation at the national and international level. From this perspective, it is necessary to improve the methodology for conducting an analysis of the financial condition of the company, taking into account the experience of foreign countries and the achievements of Ukrainian scientists in this field. This will provide analysts and owners with information about the capital structure of the enterprise and will allow you to predict whether the company will have a profit in the next reporting period and determine the reserves for increasing the company’s profit.
Conclusions. Hence, equity capital is one of the most important and important elements of an enterprise, as it is the basis and guarantee of the organization of business of various forms of ownership and organizational and legal forms. It is the basis for the establishment and development of the enterprise. In particular, in order to improve overall accounting and equity accounting, it is necessary to make changes not only at the level of the entity but also at the state level to move to International Financial Reporting Standards or to harmonize national standards, taking into account that IAS 1 requires disclosure of a much wider circle information that is provided for by the requirements of Ukrainian Accounting Standards 1.
Also, in order to improve the domestic accounting of equity capital, it is advisable to take into account the foreign experience of the enterprise, while combining it with the assets of Ukrainian scientists in this field. This will improve the quality of equity accounting, lead to improved quality management at the enterprise and provide users with financial reporting additional information for the adoption, in relation to this enterprise, more rational financial decisions.
1. Bugai O. Peculiarities of using modern information technologies in accounting of own capital of the enterprise / O. Bugay // Accounting, analysis and audit: evolution, current state and prospects of development: a collection of materials of the All-Ukrainian student’s scientific-practical conference. Kyiv, December 9, 2014 – K .: KNEU, 2014. – P. 343-345.
2. Butinets F.F. Accounting in foreign countries / Ф.Ф. Butinets // L.L. Goretzka – Zhytomyr: PE “Ruta”, 2004. – 544 p.
3. Volkova I. A. Financial accounting – 2: teaching. manual / I. A. Volkova – K .: Center for Educational Literature, 2009. – 224 p.
4. Dergachova V.V. Accounting in foreign countries [Text]: taught. manual / V.V Dergacheva, N.E. Skorobogatova L.M. – K .: NTUU “KPI”, 2011. – 257 p .: – The bibliographer: p. 255 – 257.
5. Instruction on the application of the Account of the accounts of assets, capital, liabilities and business operations of enterprises and organizations: the order of the Ministry of Finance of Ukraine dated November 30, 1999, № 291. URL: http://zakon3.rada.gov.ua/laws/show/z0893-99
6. “Presentation of Financial Statements”: International Accounting Standard 1. URL: http://zakon.rada.gov.ua/laws/show/929_013
7. Muzychenko T.O. Organization of the accounting process of equity components. Effective economy. 2015. № 6. URL: http://www.economy.nayka.com.ua/?op=1&z=4158
8. “General Requirements for Financial Statements”: National Accounting Standard (Standard) 1. URL: http://zakon.rada.gov.ua/laws/show/z0336-13
9. On Business Associations: Law of Ukraine dated 19.09.1991 № 1576-XII. URL: http://zakon.rada.gov.ua/laws/show/1576-12
10. On Approval of Methodical Recommendations for filling in the forms of financial reporting: Order of the Ministry of Finance of Ukraine dated March 28, 2013, No. 433, as amended and supplemented. URL: http://zakon.rada.gov.ua/rada/show/v0433201-13/conv
11. Sadovskaya IB Accounting : tutor. manual. / I. B. Sadovska, T. B. Bozhidarnik, K. Ye. Nagirska. – K.: “Center for Educational Literature”, 2013. – 688 p.