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Wiley l FRS: Practicallmplementation Guide and Workbook
Required
Indicate the extent to which Entity A can set off the aforement ioned receivables and payabies in its bal–
ance sheet, assuming it has an intention to settle offse tting amounts net or simultaneously on each set–
tlement date.
Solution
Entity A can offset the $3,000,000 to be received and paid on June 30 because it has a legal right and
intention to settle that amount net or simultaneously. It cannot offset the payme nts on January 15,
March 3 1, October 3 1, and Dece mber 15 or the remaining payment of $1,000 ,000 on June 30. Accord–
ingly, ignoring the time value of money, Entity A should present assets of $2,500,000 and liabilities of
$3,500,000.
5. EXCERPTS FROM FINANCIAL STATEMENTS
5.1 BARCLAYS PLC, Annual Repor t 2006
Significant Acco unting Po licies
11. Collateral and netting
The Group enters into master agreements with count erparties whenever possible and, when appro–
priate, obtains collateral. Master agreements provide that, if an event of default occurs, all outstanding
transactions with the count erparty will fall due and all amounts out standing will be settled on a net basis.
Netting
Financial assets and liabilities are offset and the net amount reported in the balance sheet if, and
only if, there is a legally enforceable right to set off the recongni sed amounts and there is an intention to
settle on a net basis, or to realise an asset and settle the liability simultaneously. In many case s, eve n
though master netting agreements are in place, the lack of an intention to settle on a net basis results in
the related assets and liabilities being presented gross in the balance sheet.
17. Issue d debt and eq uity sec uritie s
Issued financial instruments or their components are classified as liabilities where the contractual ar–
rangement results in the Group having a present obligation to either deliver cas h or another financial as–
set to the holder, to exchange financial instruments on terms that are potentially unfavourable or to sat–
isfy the obliga tion otherwise than by the exchange of a fixed amount of cash or another financial asset
for a fixed number of equity shares . Issued financial instruments, or their components, are classified as
equity where they meet the defini tion of equity and confer on the holder a resid ual interest in the assets
of the Company. The components of issued financ ial instruments that conta in both liability and equity
eleme nts are accounted for separa tely with the equity component being assigned the residual amount af–
ter deducting from the instrument as a whole the amount separa tely determined as the fair value of the li–
ability component.
Financial liabilities, other than trading liabilities and financial liabilities designated at fair value, are
carried at amo rtised cost using the effec tive interest method as set out in policy 6. Derivatives embedded
in financial liabilities that are not designated at fair value are acco unted for as set out in policy 12. Eq–
uity instruments, including share capital, are initially recognised at net proceeds, after deducting transac–
tion costs and any related income tax. Dividend and other payments to equity holders are deducted from
equity, net of any related tax.
18. Sha re capital
Share issue costs
Incremental costs directly attributable to the issue of new shares or options including those issued on
the acquisition of a business are shown in equity as a deducti on, net of tax, from the proceed s.
Dividends on ordinary shares
Dividends on ordinary shares are recog nised in equity in the period in which they are paid or, if ear–
lier, approved by the Barclays PLC (the Company) shareholders .
Treasury shares
Where the Company or any member of the Group purchases the Company's share capital, the con–
sidera tion paid is deducted from shareholders ' equity as treasury shares until they are cancelled. Where
such shares are subsequently sold or reissued, any consideration received is included in shareholders '
equity.