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Conceptual Framework - Assignment Example
Author : herzogkari
Finance & Accounting
Pages 5 (1255 words)
Difference between equity and liabilities Institution The international accounting standards Board proposed changes that aimed at fixing the problems of conceptual framework in the financial world. The problems that IASB identified in the financial sector were the inability for banks and people to fail to distinguish between equity and liability…
The IASB want to ensure that equity has first priority to common stock insolvency or liquidation. This is because in business, liability is the duty of an entity that emerge from past or previous events or transactions, the settlement that may lead to the use or transfer of assets, service provision or any other yielding profits or benefits in the future. It is also significant to note that liability differs from equity in the sense that any kind of borrowing from banks or individuals for enhancing a personal income or business, which is payable during both the long and short-term period (Klemstine 2009, 41-43). IASB understands that liability entails a responsibility or use to others that involve settlement by future use or transfer of assets, service provision and any transaction connected with producing economic profits or benefits at a determined time or specified time on either demand or occurrence of a certain event. While on the other hand, it recognizes that equity is the remaining interest or claim of the junior investors in a company’s assets following the pay out of all liabilities. ...