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Sole Proprietorships is not a legal entity, and refers to a business which is solely owned by
one person. This one person is personally liable for the debts and expenses of this type of
business. This is the simplest form for a company to use. They are advantageous to owners
because they are simple to form, and have nominal costs compared to other types of
ownership. However, sole proprietorships are problematic because the owner’s personal
assets can be reached by creditor’s for business matters.

Partnerships: This is a business owned by two or more people, who share equally in profits
and losses. Partnerships involve a number of different legal considerations that you should
familiarize yourself with. Also, there are different types of partnerships (such as general
partnerships, limited partnerships, joint ventures)

Corporations: These are separate legal entities that are owned by the shareholders.
Corporations are much more complex and are typically used by larger businesses. They have
more costly administrative fees and more complicated tax and legal requirements.
Corporations are afforded the opportunity to sell ownership shares through stock offerings.
There are also different classifications of Corporations (such as C-Corps, S-Corps, Closely Held


Revenue is measured at the fair value of the consideration received or receivable. When the
substance of a single transaction indicates that it includes separately identifiable components,
revenue is allocated to these components generally by reference to their fair values. It is
recognised for each component separately by applying the recognition criteria below.

For example, when a product is sold with a subsequent service, revenue is allocated initially
to the product component and the service component; it is recognised separately thereafter
when the criteria for revenue recognition are met for each component.

Revenue – PSAK 23

Revenue arising from the sale of goods is recognised when an entity transfers the significant
risks and rewards of ownership and gives up managerial involvement usually associated with
ownership or control, if it is probable that economic benefits will flow to the entity and the
amount of revenue and costs can be measured reliably.

Revenue from the rendering of services is recognised when the outcome of the transaction
can be estimated reliably. This is done by reference to the stage of completion of the
transaction at the balance sheet date, using requirements similar to those for construction
contracts. The outcome of a transaction can be estimated reliably when: the amount of
revenue can be measured reliably; it is probable that economic benefits will flow to the entity;
the stage of completion can be measured reliably; and the costs incurred and costs to
complete can be reliably measured.

Examples of transactions where the entity retains significant risks and rewards of ownership
and revenue is not recognised are when:
 The entity retains an obligation for unsatisfactory performance not covered by normal
warranty provisions;
 The buyer has the power to rescind the purchase for a reason specified in the sales
contract and the entity is uncertain about the probability of return; and
 When the goods are shipped subject to installation and that installation is a significant
part of the contract.

Interest income is recognised using the effective interest rate method. Royalties are
recognised on an accruals basis in accordance with the substance of the relevant agreement.
Dividends are recognised when the shareholder’s right to receive payment is established.

ISAK 10, ‘Customer loyalty programmes’, clarifies the accounting for award credits granted to
customers when they purchase goods or services, for example under frequent-flyer or
supermarket loyalty schemes. The fair value of the consideration received or receivable in
respect of the initial sale is allocated between the award credits and the other components
of the sale.

ISAK 27, ‘Transfers of assets from customers’, clarifies the accounting for arrangements where
an item of property, plant and equipment is transferred by a customer in return for
connection to a network and/or ongoing access to goods or services. ISAK 27 will be most
relevant to the utility industry, but it may also apply to other transactions, such as when a
customer transfers ownership of property, plant and equipment as part of an outsourcing


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.

This statement covers:

(1) state-owned enterprise (bumn)

(2) private enterprise
(3) cooperatives in accordance with Indonesian statutory regulations

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. 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.

The legal form and equity of an enterprise are as follows:

(1) State Owned Enterprises (BUMN) 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
(b) Perusahaan Umum (perum) as a state owned enterprise, perusahaan umum 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) 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 (APBN).

(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

(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)

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.

(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.

(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, non transferable, 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.

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 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

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. 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 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 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:

(1) the amount of money paid; or

(2) the amount of liability that arises
(3) the value of the assets other than cash distributed



Many of the individuals who purchase preferred stock are individual investors who
usually trade via online brokers. the main difference from common stock is that
preferred come with no voting rights. So when it comes time for a company to elect a
board of directors or vote on any form of corporate policy, preferred shareholders
have no voice in the future of the company.

Preferred stockholders have a greater claim to a company's assets and earnings. This
is true during the company's good times when the company has excess cash and
decides to distribute money to investors through dividends. The dividends for this
type of stock are usually higher than those issued for common stock. Preferred stock
also gets priority over common stock, so if a company misses a dividend payment, it
must first pay any arrears to preferred shareholders before paying out common

The dividend yield of a preferred stock is calculated as the dollar amount of a dividend
divided by the price of the stock. This is often based on the par value before a
preferred stock is offered. It's commonly calculated as a percentage of the current
market price after it begins trading.

Preferred stock may also be referred to as a hybrid security because of its bond-like
characteristics. Like bonds, preferred shares have a par value which is affected by
interest rates. When interest rates rise, the value of the preferred stock declines, and
vice versa. With common stocks, however, the value of shares is regulated by demand
and supply of the market participants.

Unlike common shares, preferred also have a callability feature which gives the issuer
the right to redeem the shares from the market after a predetermined time. Investors
who buy preferred shares have a real opportunity for these shares to be called back
at a redemption rate representing a significant premium over their purchase price.
The market for preferred shares often anticipate call backs and prices may be bid up

Common stock represents shares of ownership in a corporation and the type of stock
in which most people invest.

Common stock tends to outperform bonds and preferred shares. It is also the type of
stock that provides the biggest potential for long-term gains. If a company does well,
the value of a common stock can go up. if the company does poorly, the stock's value
will also go down.

Common stock also comes with voting rights. Stockholders have the ability to exercise
control over corporate policy and management issues compared to preferred

Preferred shares can be converted to a fixed number of common shares, but common
shares don't have this benefit.

When it comes to a company's dividends, the company's board of directors will decide
whether or not to pay out a dividend to common stockholders. If a company misses a
dividend, the common stockholder gets bumped back for a preferred stockholder,
meaning paying the latter is a higher priority for the company.

The claim over a company's income and earnings is most important during times of
insolvency. Common stockholders are last in line for the company's assets. This means
that when the company must liquidate and pay all creditors and bondholders,
common stockholders will not receive any money until after the preferred
shareholders are paid out.