Indonesia

7 Chapter Accounting

    • PSAK 1 DISCLOSURE ABOUT ACCOUNTING PRINCIPLE

       The Indonesian Financial Accounting Standards Board (Dewan Standar Akuntansi Keuangan or DSAK) has the authority to set Indonesian Financial Accounting Standards (PSAK) and to approve interpretations of those standards.

      PSAK are intended to be applied by profit oriented entities. These entities financial statements give information about performance, position and cash flow that is useful to a range of users in making financial decisions. These users include shareholders, creditors, employees and the general public. A complete set of financial statements includes a :

      1.       Balance sheet (statment of financial position)
      2.       Statement of comprehensive income
      3.       Statement of changes in equity
      4.       Statement of cash flows
      5.       A description of accounting policies
      6.       Statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statement.
       
      The objective of financial statements is to provide information that is useful in making economic decision. The objective of PSAK 1 is to ensure comparability of presentation o that information with the entity’s financial statements of previous periods and with the financial statements of other entities. Finansial statements are prepared on a going concern basis unless management  intends either to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Management prepares its financial statements, excepts for cash flow information, under the accrual basis of accounting.
      Financial statements disclose corresponding information for the preceding period (comparatives) unless a standard or interpretation permits or requires otherwise. 

    • PSAK 2 CASH FLOW STATEMENTS

       The cash flow statement is one of the primary statements in financial reporting. It presents the generation and use of cash abd cash equivalents by category over a specific time. It provides users with a basis to assess the entity’s ability to generate and utilise its cash.

      Operating activities are the entity’s revenue producing activities. Investing activities are the acquisition and disposal of long term assets and investments that are not cash equivalents. Financing activities are changes in equity and borrowings. Management may present operating cash flows by using either the direct method or the indirect method.

      Cash flows from investing and financing activities are reported separately gross unless they meet certain specified criteria. The cash flows arising from dividens and interest receipts and payments are classified on a consistent basis and are separately disclosed under the activity appropriate to their nature.
      Cash flows relating to taxation on income are classified and separately disclosed under operating activities unless they can be specifically attributed to investing or financing activities.
      The total that summarises the effect of the operating, investing and financing cash flows is the movement in the balance of cash and cash equivalents for the period.
      Separate disclosure is made of signification non cash transactions. Non cash transactions include impairment losses/reversals, depreciation. Amortisation, fair value gains/losses, and income statement charges for provisions.

    • PSAK 4 CONSOLIDATED FINANCIAL STATEMENT

       This Statement deals with the preparation and presentation of consolidated financial  for a group of enterprises under the control of a parent company. Consolidated financial statements have been developed to meet the requirement for information concerning the financial position, results of operations and changes in the financial position of a group of enterprises.
       
      　This Statement does not deal with:
      1.       the method of accounting for business combinations and their effects on consolidation, including goodwill arising on a business combination;
      2.       accounting for investments in associates; and
      3.       accounting for investments in joint ventures.
      This Statement is applicable for all parent companies as long as there is no specific guidance in a separate Statement concerning the preparation of consolidated financial statements.
      Users of financial statements are usually concerned with and need to be informed of the financial position, results of operations and cash flows of the group company. This need is solved by consolidated financial statements, which present financial information about the group company as a single economic entity even though each company in the group is a separate legal entity.
       
      Criteria for Preparation of Consolidated Financial Statements
      Consolidated financial statements include all enterprises that are controlled by the parent company. Control is presumed to exist when the parent company owns, directly, or indirectly through subsidiaries, more than 50 percent of the voting rights of an enterprise. Even when a company owns 50 percent or less of the voting rights of an enterprise, control exists when one of the following conditions is met:
      1.       having more than 50 percent of the voting rights by virtue of an agreement with other investors;
      2.       having the right to govern the financial and operating policies of the enterprise under the articles of association or an agreement;
      3.       ability to appoint or remove the majority of the members of the board of directors and commissioners; and
      4.       ability to control the majority of votes at a meeting of the board of directors or commissioners.
      A subsidiary is excluded from consolidation when:
      1.       control is intended to be temporary because the subsidiary is acquired and held exclusively with a view to its subsequent disposal in the near future; or,
      2.       it operates under long term restrictions which significantly impair its ability to transfer funds to the parent company.
      Consolidation Procedures
      In preparing consolidated financial statements, the financial statements of the parent company and its subsidiaries are combined on a line by line basis by adding together like terms of assets, liabilities, equity, income and expenses. In order that the consolidated financial statements present financial information about the group company as a single economic entity, the following steps are then taken:
      (a) the carrying amount of the parent company's investment in each subsidiary and the parent company's portion of equity of each subsidiary are eliminated;
      (b) inter-company balances and transactions including sales, expenses and dividends are eliminated in full;
      (c) unrealized profits and losses resulting from inter-company transactions are eliminated;
      (d) minority interest in the net income is presented as a deduction from the consolidated net income to arrive at the net income attributable to the shareholders of the parent company; and
      (e) minority interests in the net assets are presented in the consolidated balance sheet separately between liabilities and equity. Minority interests in the net assets consist of:
      (i) the amount at the date of the original combination calculated in accordance with  No. 22, Accounting for Business Combinations; and
      (ii) the minority's share of movement in equity since the date of the combination.
      The financial statements of the parent company and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes, statements as at the same date as the parent company. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference is no greater than three months. The consistency principle dictates that the length of reporting periods and any difference in the reporting dates should be the same from period to period.
      When financial statements with different reporting dates are consolidated, adjustments are made for the effects of any significant events for inter-company transactions that occur between these dates and the date of the consolidated financial statements.
      Consolidated financial statements are prepared using a uniform accounting policy for similar transactions and events in similar circumstances. If a member of the group company uses accounting policies other than those adopted in the consolidated financial statements for similar transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements. If it is not practicable for such adjustments to be calculated, that fact is disclosed in the notes to the consolidated financial statements, together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied.
      If an acquisition is conducted within the current year, the results of operations of a subsidiary are included in the consolidated financial statements as from the date of acquisition, which is the date on which control of the acquired subsidiary is effectively transferred to the buyer. The results of either partly or entirely disposed operations of a subsidiary are included in the consolidated income statement until the date of disposal which is the date on which the parent company ceases to have control of the subsidiary. The difference between the proceeds from the disposal of the subsidiary and the carrying amount of its assets less liabilities as of the date of disposal is recognized in the consolidated income statements as the gain or loss on the disposal of the subsidiary. In order to ensure the comparability of the financial statements from one accounting period to the next, supplementary information is often provided about the effect of the acquisition and the disposal of subsidiaries on the financial position at the reporting date and the results for the reporting period and on the corresponding amounts for the preceding period.
      As from the date that it ceases to fall within the definition of a subsidiary and does not become an associate as defined in SFAS No.15, Accounting for Investments in Associates, an investment in an enterprise is accounted for in accordance with SFAS No. 13, Accounting for Investments.
      The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess and any further losses applicable to the minority, are charged against the majority interest except to the extent that minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profit, the majority interest is allocated all such profits until the minority's share of losses previously absorbed by the majority has been recovered.
      If a subsidiary has outstanding cumulative preferred shares which are held outside the group company, the parent company computes its share of profits or losses after adjusting for the subsidiary's preferred dividends, whether or not dividends have been declared.
       
      Reporting Parent Company's Separate Financial Statements
      If the parent has met the requirements for consolidation, consolidated financial statements should be prepared. A parent that has met the requirements should not present its financial statements on a stand alone basis because there is only one general purpose financial statement which is a consolidated financial statement. However, stand alone financial statements can be presented as additional information. In a parent company’s CONSOLIDATED FINANCIAL STATEMENTS SFAS No. 4 stand alone financial statements, investments in subsidiaries should be recorded using the equity method.

    • PSAK 7 RELATED PARTY DISCLOSURE

       Disclosures are required in respect of an entity’s transactions with related parties. Related parties include :

      1.       subsidiaries
      2.       fellow subsidiaries
      3.       associates of the entity and other members of the group
      4.       joint ventures of the entity and other members of the group
      5.       members of key management personnel of the entity or of a parent of the entity
      6.       persons with control, joint control or significant influence over the entity
      7.       post employment benefit plans.

       
      Finance providers are not related parties simply because of their normal dealings with the entity. Management discloses the name of the entity’s parent and, if different, the ultimate controlling party. Relationships between a parent and its subsidiaries are disclosed irrespective of wether there have been transactions with them.
      Where there have been related party transactions during the period, management discloses the nature of the relationship and information about the transactions and outstanding balances, including commitments, necessary for users to understand the potential impact of the relationship on the financial statements. Disclosure is made by category of related party and by major type of transaction. Items of similar nature may be disclosed in aggregate, except when separate disclosure is necessary for an understanding of the effects of related party transactions on the reporting entity’s financial statements.
      Management only discloses thet related party transactions were made on terms equivalent to those that prevail for arm’s length transactions if such terms can be substantiated. An entity is exempt from the disclosure of transactions with related party that is either government that has control joint control or significant influence of the same government as the entity. Where the entity applies the exemption, it discloses the name of the government and the nature of its relationship with the entity. It also discloses the nature and amount of each individually significant transaction and the qualitative or quantitative extent of any collectively significant transactions.

    • PSAK 10 TRANSACTIOM OF THE FOREIGN CURRENCY

       Many entities do business with overseas suppliers or customers, or have overseas operations. This gives rise to two main accounting issues :
       
      1.       some transactions may be dominated in foreign currencies. These transactions are expressed in the entity’s own currency, or alternatively its functional currency for financial reporting purposes.
       
      2.       An entity may have foreign operations such as overseas subsidiaries, branches or associates that maintain their accounting records in their local currency. Because it is not possible to combine transactions measured in different currencies, the foreign operation’s results and financial position are translated into a single currency, namely that in which the group’s consolidated financial statements are reported.
       
      The methods required for each of the above circumtances are summarised below.
      A foreign currency transaction is expressed in the entity’s functional currency using the exchange rate at the transaction date. Foreign currency balances representing cash of amounts to be received or paid in cash are reported at the end of the reporting period using the exchange rate on that date. Exchange differences on such monetary items are recognised as income or expense for the period. Non monetary balances that are not re-measured at fair value and are dominated in a foreign currency are expressed in the functional currency using the exchange rate at the transaction date. Where a non monetary item is re-measured at fair value in the financial statements, the exchange rate at the date when fair value was determined is used.

    • PSAK 13 PROPERTY OF INVESTMENT

       Investments in properties are classified as current investments or long term investments. The accounting treatment is in accordance with the investment basis.
       
      Current Investments
      Opinions differ on the appropriate carrying amount for current investments. Some maintain that for financial statements prepared under the historical cost convention, the general rule of lower cost and net realizable value is applicable to investment; since most current investments are marketable, the carrying amount is the lower of cost and market value. Supporters of this method claim that it provides a prudent balance sheet amount and does not result in recognizing unrealized gains in income.
      Others argue that since current investments are readily realizable store of wealth or a cash substitute, it is appropriate to value them at fair value, usually market value. The company is not concerned with cost of such items but with the cash it could raise by disposing of them. Current investments are distinguished from inventories because they can generally be sold without considerable effort, whereas it would normally be inappropriate to recognize profit on sale of inventories before the sale was assured. Each investment is dispensable by the business, for example, an equity investment could be sold and the proceeds re-invested in a bank deposit account without detriment to the business. Therefore, it is appropriate to report it at market value.
      A company is generally concerned with the overall value of its current investment portfolios, not with each individual investment, because the investments are held collectively as a store of wealth. Consistent with this view, investments carried at the lower of cost and market value are valued on an aggregate portfolio basis, in total or by category of investment, and not on an individual investment basis. However, some argue that the use of the portfolio basis results in losses being offset against unrealized gains.
       
      Long Term Investments
      Long term investments are usually carried at cost. However, when there is a decline in the value of a long term investment, other than temporary, the carrying amount is reduced to recognize the decline. Indicators of the value of an investment may be obtained by reference to its market value, the investee’s assets and results and the expected cash flows from the investment. The risk, type and extent of the investor’s stake in the investee are also taken into account. Restrictions on distribution by the investee (e.g. dividend payment or investment payment) or on disposal by the investor may affect the value attributed to the investment.
      Many long term investments are of individual importance to the investing company. The carrying amount of long term investments are therefore normally determined on an item by item basis. However, in some countries, marketable equity securities classified as long term investments may be carried at the lower of cost and market value determined on a portfolio basis. In these cases, temporary reductions and reversals of such reductions are included in equity.
      Reductions, other than temporary, for declines in the carrying amounts of long term investments are charged in the income statement. Reductions in the carrying amount may be reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist. Reversals may not cause the value of the investment to be greater than the original cost.
      Investment properties are generally recorded as long term investments, except if intended to be held for a year or less. Investment properties may not be presented as a part of fixed assets and can not depreciated

    • PSAK 14 INVENTORY

       Inventories are initially recognised at cost. Cost of inventories includes import duties, non refundable taxes, transport and handling costs, and any other directly attributable costs less trade discounts, rebates and similiar items.

      Inventories are valued at the lower of cost and realisable value (NRV). NRV is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated selling axpenses.

      PSAK 14 requires the cost for items that are not interchangeable or that have been segregated for specific contracts to be determined on an individual item basis. The cost of other items of inventory used is assigned by using either the first in, first out, or wighted average cost formula. Last in, last out is not permitted. An entity uses the same cost formula for all inventories that have a similar nature and use to the entity. A different cost formula may be justified where inventories have a different nature or use. The cost formula used is applied on a consistent babsis from period to period.

    • PSAK 16 FIX ASSET

       Fixed assets are tangible assets which are acquired in a ready to use form, are constructed for use by the company, are not intended for sale in the company’s normal activities, and have a useful life of more than one year.
       
      　A tangible item should be recognized as an asset and classified as a fixed asset when:
      (a) it is probable that future economic benefits associated with the asset will flow to the company; and
      (b) the acquisition cost of the asset can be measured reliably.
      Fixed assets often represent a major portion of the total assets of a company, and is therefore significant in the presentation of the company’s financial position. Furthermore, the determination of whether an expenditure represents an asset or an expense can have a significant effect on a company’s reported results of operations.
      In determining whether an item satisfies the first criterion for recognition, a company needs to assess the degree of certainty attached to the flow of future economic benefits on the basis of the available evidence at the time of initial recognition. Existence of sufficient certainty that the future economic benefits will flow to the company require assurance that the company will receive the rewards attached to the asset and will undertake the associated risks. This assurance is usually only available when the risks and rewards have passed to the company. Before this condition occurs, the transaction to acquire the asset can usually be canceled without significant penalty and therefore the asset is not recognized.
      The second criterion for recognition is usually readily satisfied because the exchange transaction evidencing the purchase of the asset identifies its cost. In the case of a self-constructed asset, a reliable measurement of the cost can be made from the transactions between external parties and the company for the acquisition of the materials, labor and other inputs used during the construction process.
      In identifying what constitutes a separate fixed asset item, judgment is required in applying the criteria to the definition of specific types of companies. It may be appropriate to aggregate individually insignificant items, such as molds, tools and dies, and to apply the criteria to the aggregate value. Most spare parts and servicing equipment are usually carried as inventory and recognized as an expense when consumed. However, major spare parts and stand-by equipment qualify as fixed assets when the company expects to use them during more than one period. Similarly, if the spare parts and servicing equipment can be used only in connection with a fixed asset and their use is expected to be irregular, they are accounted for as fixed assets and are depreciated over a time period not exceeding the useful life of the related asset.
      In certain circumstances, it is appropriate to allocate the total expenditure of an asset to its component parts and account for each component separately if the acquisition cost of each component can be obtained from its supplier or its producer. This is the case when the component assets have different useful lives or provide benefits to the company in a different pattern, thus necessitating the use of different depreciation rates and methods. For example, an aircraft and its engines need to be treated as separate depreciable assets if they have different useful lives.
      Fixed assets may be acquired for safety or environmental reasons. The acquisition of such fixed assets, while not directly increasing the future economic benefits of any particular existing fixed asset, may be necessary in order for the company to obtain the future economic benefits from its other assets. When this is the case, such acquisitions of fixed assets qualify for recognition as assets, in that they enable future economic benefits from related assets to be derived by the company in excess of what it could derive if they had not been acquired. However, such assets are only recognized to the extent that the resulting carrying amount of such an asset and related assets does not exceed the total recoverable amount of that asset and its related assets. For example, a chemical manufacturer may have to install certain new chemical handling processes in order to comply with environmental requirements for the production and storage of dangerous chemicals; related plant enhancements are recognized as an asset to the extent they are recoverable because, without them, the company is unable to manufacture and sell chemicals.
       
      Initial Measurement of Fixed Assets
      An item which qualifies for recognition as a fixed asset and which is categorized as fixed assets, should initially be measured at its cost.
      Components of Cost
      The cost of a fixed asset comprises its purchase price, including import duties and non-refundable (non-creditable) input value added tax, and any directly attributable costs of bringing the asset to working condition for its intended use; any trade discounts and rebates are deducted in arriving at the purchase price. Examples of directly attributable costs are:
      (a) the cost of site preparation;
      (b) initial delivery and handling costs;
      (c) installation costs; and
      (d) professional fees such as for architects and engineers.
      When payment for a fixed asset is deferred beyond normal credit terms, its cost is the cash price equivalent, the difference between this amount and the total payments is recognized as interest expense over the period of credit unless it is capitalized in accordance with the permitted alternative treatment in SFAS No. 26, Accounting for Interest in the Construction Period.
      Administration and other general overhead costs are not a component of the cost of fixed assets as long as they can not be directly attributed to the acquisition cost of the asset or bringing the asset to its working condition. Similarly, start-up and similar pre-production costs do not form part of the cost of an asset unless they are necessary to bring the asset to its working condition. Initial operating losses incurred prior to an asset achieving planned performance are recognized as an expense.
      The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If a company makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of producing the assets for sale (see SFAS No. 14, Inventories). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labor or other resources incurred in the production of a self-constructed asset is not included in the cost of the asset. SFAS No. 26, Accounting for Interest in the Construction Period, establishes criteria which need to be satisfied before interest costs can be recognized as a component of fixed asset cost.

    • PSAK 24 EMPLOYMENT BENEFITS

       Employee benefits are all forms of consideration given or promised by an entity in exchange for services rendered by its employees. These benefits includes salary related benefits (such as wages, profit sharing, bonuses, and compensated absences, such as paid holiday and long service leave), temination benefits (such as retirement benefit plans).

      Post employment benefits include pensions, post employment life insurance and medical care. Pensions are provided to employees either through defined contribution plans or defined benefit plans.

      Recognation and measurement for short term benefits is straightforward, because actuarial assumptions are not required and the obligations are not discounted. However, long term benefits, particularly post employment benefits, give rise to more complicated measurement issues.
      Accounting for defined benefit plans is complex because actuarial assumptions and valuation and valuation methods are required to measure the balance sheet obligation and the expense. The expense recognised is not necessarily the contribution made in the period.
      The amount recognised on the balance sheet is defined benefit obligation less plan assets adjusted for actuarial gains and losses. To calculate the defined benefit obligation, estimates about demographic variables and financial variables are input to a valuation model. The benefit is then discounted to present value. This normally requires the expertise of an actuary.
      Where defined benefit plans are funded, the plan assets are measured at fair value using discounted cash flow estimates if market prices are not available. Plan assets are tightly defined, and only assets that meet the definiton of plan assets may be offset against the plan’s defined benefit obligations, that is the net surplus or deficit is shown on the balance sheet.

    • PSAK 26 LOAN

       The objective of this Statement is to prescribe the accounting treatment for borrowing costs. This Statement generally requires the immediate expensing of interest costs as incurred. However, borrowing costs which could be directly attributable to the acquisition, construction, or production of a qualifying asset should be capitalized.
       
      Borrowing costs  are interest and other related costs incurred by an enterprise in connection with the borrowing of funds.
      Borrowing costs includes the following: 
      1.       Interest on borrowed funds, either short-term or long-term. 
      2.       Amortization of discounts or premiums related to the borrowings. 
      3.       Amortization of costs incurred in connection with obtaining the borrowing such as consultants’ fees, legal fees, commitment fees and the like. 
      4.       Exchange differences arising from borrowings denominated in foreign currencies (as long as the exchange differences are adjustments to interest costs) or amortization of premiums related to contracts to hedge against borrowings denominated in foreign currencies.  
      Qualifying assets include qualifying inventory, manufacturing plants and power generation facilities. Assets that are ready for their intended use or sale at the acquisition date are not qualifying assets. 
       
      Qualifying inventory is defined as inventory that requires a substantial period of time to bring them to a saleable condition. A substantial period of time is defined as 12 months or more. Inventory which is ready for sale at the acquisition date is not a qualifying asset.
      If borrowing costs can be directly attributable to a qualifying asset, it should be capitalized to that qualifying asset. If borrowing costs cannot be directly attributable to a qualifying asset, then capitalization of these costs should be determined.
       Under certain circumstances, it is difficult to identify the direct relationship between the particular borrowing and the acquisition of a qualifying asset, and to determine that a particular borrowing could otherwise have been avoided if the acquisition of a qualifying asset did not occur. For instance: if there is centralization of the financing function for all business activities. It can also be difficult if the Company obtains several debt instruments with varying interest rates. Under such circumstances, it is difficult to determine the total borrowing costs which are directly attributable to the acquisition of a qualifying asset and hence the exercise of judgment is required.  
       If the borrowing is specifically for the purpose of acquiring a qualifying asset, the total borrowing costs capitalized would comprise of all borrowing costs incurred on that borrowing during the period less any investment income earned on the unused proceeds from the borrowings.   
       The financing arrangements for the acquisition of a qualifying asset may require a company to receive the borrowed funds and pay borrowing costs before all or part of the borrowed funds are used for the acquisition of the qualifying asset. In determining the amount of borrowing costs that are eligible for capitalization during the period, the borrowing costs are reduced by the investment income on the unused proceeds from the borrowing. 
       If borrowed funds were not specifically for the purpose of acquiring qualifying assets but were subsequently  used to acquire qualifying assets, the amount of borrowing costs eligible for capitalization should be determined by applying a capitalization rate to the expenditures on those assets. The capitalization rate is calculated based on the weighted average of borrowing costs divided by total borrowings for the period (not including borrowings specifically for the purpose of obtaining qualifying assets). The amount of borrowings costs capitalized during a period should not exceed the total borrowing costs incurred during that period.

    • PSAK 30 LEASE

       Common types of leases, including the two types of leases stipulated in the Ministry of Finance Decree, are as follows: 
       
      1.       Finance Lease:  Under this type of lease, a lessor finances the procurement of capital goods. A lessee usually decides on the required capital goods and, on behalf of the lessor as the owner of the capital goods, orders, inspects and maintains the leased asset. During the lease term, the lessee makes periodic payments, the total of which plus the payment of the residual value, if any, will cover the acquisition price of the capital goods and interest, which represents income to the leasing company. 
      2.       Operating Lease:  Under this type of lease, the lessor buys the required capital goods to be leased to the lessee. Unlike the finance lease, the total periodic payments in an operating lease does not cover the amount spent to acquire the capital goods and the interest. The difference is due to the lessor's expectation of earning a profit from the sale of the leased assets or from other lease contracts. 
      The lessor should possess special skills to maintain and to resell the leased capital goods. Unlike a finance lease, the lessor in an operating lease usually has the responsibility for lease expenses, such as insurance, tax and maintenance of the related capital goods. 
      3.       Sales-Type Lease:  A sales-type lease is a direct finance lease where the total transaction amount includes the profit determined by manufacturers or distributors who are also the lessors. This type of lease is usually a distribution channel for marketing of a certain company's product. 
      4.       Leveraged Lease:  This lease transaction usually includes at least three parties: the lessee, the lessor and the long-term creditors who finance the major portion of the leasing transaction.
       
      A lease gives one party (the lessee) the right to use an asset over ageed period of time in retun for payment to the lessor. Leasing is an important source of medium and long term financing. Accounting for leases can have a significant impact on leassees or lessors financial statements.
      Leases are classified as finance or operating leases at inception depending on wheter substantially all of the risks and reward of ownership transfer to the lessee. Under a finance lease, the lessee has substantially all the risks and reward of ownership. All other leases are operating leases. Leases of land and bulldings are considered separately under PSAK. Under a finance  lease, the lessee recognizes an asset held under a finance lease and a corresponding obligation to pay rentals. The lessee depreciates the asset.
      The lessor recognizes the leased asset as a receivable. The receivable is measured at the ‘net investment’ in the lease, the minimum lease payments receivable, discounted at the internal rate of return of the lease, plus the unguaranteed residual which accrues to the lessor.
      Under an operating lease, the lesse does not recognize an asset and lease obligation. The lessor continuous to recognize the leased asset and depreciates it. The rentals paid are normally charged to the income statement of the lessee and credited to that of the lessor on a straight line basis.
      Equally, some transactions that do not have the legal form of lease are in substance leases if they are dependent on a particular asset that the purchaser can control physically or economically.

    • PSAK 46 DEFFERED TAX

       Deffered tax accounting seeks to deal with this mismatch. It is based on the temporary differences between the tax base of an asset or liability and its carrying amount in the financial statements. For example, a property is revalued upwards but not sold, the revaluation creats a temporary difference, and the tax consequence is a deffered tax liability.

      Deffered tax is provided in full for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements, except when the temporary difference arises from :

      ·         Initial recognition of goodwill
      ·         Initial recognation of an asset or liability in a transaction that is not a business combination and that affects neither accounting profit nor taxable profit; and
      ·         Investments in subsidiaries, branches, associates and joint ventures, but only where certain criteria apply.
      Deffered tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates that have been enacted or substantively enacted by the balance sheet date. The discounting of deffered tax assets and liabilities is not permitted.
      The measurement of deffered tax liabilities and deffered tax assets reflects the tax consequences that would follow from the manner in which the entity expects, at the balance sheet date, to recover or settle the carrying amount of its assets and liabilities.
      Management only recognise a deffered tax asset for deductible temporary differences to the extent that is probable that taxable profit will be available against which the deductible temporary differenece can be utilised. This also applies to deffered tax assets for unused tax losses carried forward.

    • PSAK 48 IMPAIRMENT OF ASSET

       Nearly all assets are subject to an impairment test to ensure that they are not overstated on blance sheets.

      The basic principle of impairment is that an asset may not be carried on the balance sheet above its recoverable amount. Recoverable amount is defined as the higher of the asset’s fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from a sale of an asset in an arm’s length transaction between knowledgeable, willing parties, less costs of disposal. Value in use requires management to estimate the future cash flow to be derived from the asset and discount them using a pre-tax market rate that reflects current assessments of the time value of money and the risks specific to the asset.

      All assets subject to the impairment guidance are tested for impairment where there is an indication that the asset may be impaired. Certain assets such as goodwill, indefinite lived intangible assets and intangible assets that are not yet vailable for use, are also tested for impairment nually event if there is no impairment indocator. When considering whether an asset is impaired, both external indocators and internal indocators are considered.
      Recoverable amount is calculated at the individual asset level. However, an asset seldom generatescash flows independently for other assets, and most assets are tested for impairment in groups of assets described as cash generating unit (CGUs). A CGU is the smaller identifiable group of assets that gnerates inlows that are largely independent from the cash flows from other CGUs.
      The carrying value of an asset is compared to the recoverable amount. An asset or CGUs is impaired when it is carrying amount axceeds it is recoverable amount. Any impairment is allocated to the asset or ssets of the CGUs, with the impairment loss recognized in the profit or loss.
      Goodwill acquired in a business combination is allocated to the acquire’s CUs or groups of CGUs that are expected to benefit from the synergies of the business combination. However, the largest group of CGUs permitted for goodwill impairment testing is lowest level of operating segment before aggregation.

    • PSAK 50 DISCLOSURE ABOUT FINANCIAL ASSET

       Financial assets and liabilities are measured either at fair value or at amortised cost, depending on their classification. Changes are taken to either the income statement or to other comprehensive income.

      Reclassification of financial assets from one category to another is permitted under limited circumtances. Various disclosures are required where a reclassification has been made. Derivatives and assets designated as at fair value through profit or loss under the fair value option are not eligible for this reclassification.

      A financial asset is a cash, a contractual right to recieve cash or another financial asset, a contractual right to exchange financial assets or liabilities with another entity under conditions that are potentially favourable, or an equity instrument of another entity.
      Financial assets and liabilities are measured either at fair value or at amortised cost, depending on their classification. Changes are taken to either the income  statement or to other comprehensive income. An entity that holds a financial asset may raise finance using the asset as security for the finance, or as the primary source of cash flows from which to repay the finance.

    • PSAK 51 BANKRUPTCY– QUASI REORGANIZATION

       Recurring or significant losses suffered by an enterprise could give rise to negative retained earnings or accumulated deficit. An enterprise facing an accumulated deficit position may experience difficulties both in conducting its activities and financing its operations. Creditors, investors and raw material suppliers may perceive such an enterprise as high risk and therefore tend to avoid it. It is even more serious if such accumulated deficit causes the enterprise to violate certain debt covenants, for example those requiring the enterprise to maintain positive retained earnings, resulting in the enterprise having to repay its obligations immediately. Such circumstances can drive the enterprise into bankruptcy, even though in terms of business prospects it may still be possible for the enterprise to survive and grow in the future.  

      Quasi reorganization is an accounting procedure that permits enterprises to restructure their equity by eliminating the accumulated deficit and revaluing all their assets and liabilities, without undergoing a legal reorganization. Under this method, it is expected that the enterprise will be better able to continue its business, as if making a fresh start, with a balance sheet which reflects fair value, without being burdened by the accumulated deficit.  

      A quasi reorganization may only be undertaken if there is sufficient certainty that, after the quasi reorganization, the enterprise will be able to maintain its status as a going concern and thrive. This can be achieved if the enterprise, despite deficits caused by operations in the past, still has good prospects for the future. Such prospects may arise from the development of new products and markets, entry of a new management group, or an upturn in the economy which contributes to improved operating results.  This requirement for the enterprise to be a going concern has the implication that an enterprise facing bankruptcy proceedings from its creditors is not permitted to implement a quasi reorganization.  
      A quasi reorganization differs from a true reorganization, commonly known as corporate restructuring, in terms of actual cash flow. In a true reorganization, it is possible to convert liabilities to equity, to amend the maturities and interest rates of obligations, to reduce interest in arrears or defer the payment thereof, to change the share classifications, or to inject fresh capital in the form of share capital and/or debt. In a quasi reorganization, there is no such real cash flow; rather, there is a revaluation of all the assets and liabilities at their fair values and an elimination of the accumulated deficit to additional paid-in capital and share capital. Thus a reorganization of this type is called a quasi reorganization. Its main objective is to eliminate the accumulated deficit and reflect the assets and liabilities at their fair values. 
      A quasi reorganization can be implemented by itself or be implemented in conjunction with a corporate restructuring, by bringing in new investors for example. If, in a quasi reorganization, the accumulated deficit exceeds additional paid-in capital and share capital accounts, a true reorganization by means of increasing the paid-in capital should be implemented. 
      A quasi reorganization is not merely a method of reflecting a better financial position by eliminating the accumulated deficit. A quasi reorganization is a method for saving a company which, although burdened by a significant accumulated deficit, actually has good business prospects.   
       
      The conditions which must be fulfilled by an enterprise in order to effect a quasi reorganization are as follows:  
      (a) the enterprise has a significant accumulated deficit; 
      (b)  the enterprise should be able to continue operating as a going concern and have good business prospects at the time the quasi reorganization is effected; 
      (c) the enterprise is not currently facing bankruptcy proceedings;
      (d) it does not contradict existing laws and regulations; and 
      (e)  the shareholders’ equity balance after the quasi reorganization is effected should be positive.  
      A quasi reorganization is implemented based on the accounting reorganization method. Under this method, the assets and liabilities are revalued based on fair values. The accumulated deficit balance and the revaluation difference are eliminated against the additional paid-in capital account.  
      In the event that the additional paid-in capital is not sufficient to eliminate the accumulated deficit after the process of revaluing the assets and liabilities, the remaining deficit should be eliminated against share capital. For this purpose, the share capital should first be restructured by reducing its par value and reclassifying the amount of this reduction to the additional paid-in capital account.  
      In the process of effecting a quasi reorganization, the assets and liabilities should be revalued based on fair values. 
       The fair values of assets and liabilities are determined based on the market values.  If the market values are not available, estimates of the fair value are made based on the best information available. An estimate of the fair value is made by comparing the price of assets of similar types as well as valuation methods most appropriate for the assets and liabilities in question.  
       
      Examples of such valuation methods include the following: 
      (a) present value or discounted cash flow taking into consideration the level of risk;
      (b) option-pricing models;
      (c) matrix-pricing; and
      (d) fundamental analysis.   
      The difference between the fair value of the assets and liabilities and the book value is recognized or recorded in the accumulated deficit account.  
      The balance in the accumulated deficit account after the process of revaluing the assets and liabilities should be eliminated against additional paid-in capital. If the additional paid-in capital is inadequate, the remaining balance should be eliminated against share capital.

    • PSAK 52 REPORTING CURRENCY

       Functional currency is the primary currency from the standpoint of economic substance. It is essentially the  primary currency reflected in the operating activities of the enterprise. 
       
      　Reporting currency is the currency used in the presentation of financial statements.
       
      The reporting currency used by enterprises in Indonesia is the rupiah. Enterprises can use a currency other than the rupiah as the reporting currency only if the respective currency meets the criteria of functional currency.  
      The recording currency should be the same as the reporting currency. 
      In general, financial statements should be reported in local currency. However, if an enterprise uses a currency other than the local currency (for instance U.S. Dollar) as its reporting currency, this reporting currency should also be the functional currency. The functional currency can be the rupiah or a currency other than the rupiah (for instance U.S. Dollar), depending on the economic substance. 
      The financial statements are intended to provide financial information on results of operations, financial position, and cash flows of the enterprise. The financial statements are derived from the accounting records of the enterprise; accordingly, the currency used in the accounting records should be the same as the currency used in the financial statements. Under this concept, the procedures for remeasurement of the accounting records  or translation of  the financial statements are no longer required, except for comparative periods when the enterprise adopts this Statement and for financial statements which are consolidated, because, in essence, the financial statements have been presented in the functional currency.
      An enterprise should change its recording and reporting currency to the rupiah when the functional currency changes from a non-rupiah currency to the  rupiah. The change in recording and reporting currency should be made at the beginning of the fiscal year, not during the fiscal year. 
      The enterprise’s decision to change the reporting currency can only be made due to changes in economic substance relating to the functional currency. During the operating life of the enterprise, the functional currency can change when there are changes in the enterprise’s operations or markets.