The total carrying amount of equity (total equity) is not measured directly. It equals the total of the carrying amounts of all recognised assets less the total of the carrying amounts of all recognised liabilities.
Because general purpose financial statements are not designed to show an entity’s value, the total carrying amount of equity will not generally equal:
- the aggregate market value of equity claims on the entity;
- the amount that could be raised by selling the entity as a whole on a going concern basis; or
- the amount that could be raised by selling all of the entity’s assets and settling all of its liabilities.
Although total equity is not measured directly, it may be appropriate to measure directly the carrying amount of some individual classes of equity (see Equity – Different classes – different rights) and some components of equity (see Equity – Requirements and components of equity). Nevertheless, because total equity is measured as a residual, at least one class of equity cannot be measured directly. Similarly, at least one component of equity cannot be measured directly. Measurement of equity
The total carrying amount of an individual class of equity or component of equity is normally positive, but can be negative in some circumstances. Similarly, total equity is generally positive, but it can be negative, depending on which assets and liabilities are recognised and on how they are measured. Measurement of equity
There is no International Financial Reporting Standard in respect of equity, on the other hand almost all International Financial Reporting Standards relate to equity by definition (the residual of assets less liabilities). The more important standards that relate (indirectly) to the measurement of equity (and disclosures) are:
IAS 1 – Presentation of Financial Statements
IAS 8 – Accounting Policy, Changes in Accounting Estimates and Errors
IAS 16 – Property, Plant and Equipment
IAS 21 – The effects of changes in foreign exchange rates
IAS 38 – Intangible assets
IAS 32, IFRS 7 and IFRs 9 – Financial Instruments Measurement of equity