Sale of shares or disinvestment are considered as reduction in the assets of the govt but in accounting terms we treat it as a liability in the balance sheet .plz explain and clear this doubt


Dear Student,

When shares are sold or disinvestment is done , government is losing its investments in any particular entity or business and thus it is termed as reduction in assets of the government, because through the sale of shares we receive money back on what we have earlier invested;

Looking the same situation from accounting perspective it is the same as reduction in assets because for government's balance sheet the investment would be assets only; Shares would form liability in balance sheet of the entity or the business who is actually being disinvented by government
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i.e lets say Govt has sold shares of EXY Ltd. so for govt it would be reduction in assets and would not have any impact on its liability part because Share Capital would be liability in the books of EXY Ltd.

Hope this clears your doubt!!

Keep Posting !!

Regards,

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