Company with sufficient cash flow should use its current assets to cover left on their own holding losses. This method is appropriate only if the company has a positive working capital. (Recall that the current assets consist of cash and other liquid assets that can or will be converted into cash within one year.
Working capital is current assets minus current liabilities.) Relying on cash flow and on the sale of its current assets to cover left on the net retention of losses, the company has nefinansirusmy loss plan (unfunded Loss Retention Plan) , left on his own holding.
Take the case of "KYZtehnologii" shown earlier. Balance sheet "KYZtehnologii" (see. table ) shows that current assets amount to 617.5 million dollars., and reserves to cover left on their own holding losses - $ 4.5 million. Working capital "KYZtehnologii" equal to 247.0 million dollars . Therefore, "KYZtehnologii" has more than enough value of current assets, which the company can sell to cover left on the net retention loss when it becomes necessary.
Some organizations create internal fund to cover left on their own holding losses. When an organization uses internal fund (Internal Fund) , it outlines the liquid assets, such as cash or marketable securities to cover left on their own holding losses. This type of plan is a funded plan own deduction of losses {Funded Loss Retention Plan) , because the assets are set aside specifically to cover left on their own holding losses.
Assets pending in the domestic fund are recorded in the balance of the organization separately. In some cases, an external organization, such as an insurance company, to create a fund on behalf of the organization, leaving on their own hold their losses. When this happens, the fund is external to the organization and method of accounting determined by the parties, so it may not be reflected as an asset on its balance sheet. When the fund is not reflected in the balance of the organization, it relates to off-balance (off-balance Sheet Fund) .
When an organization maintains current assets or off-balance sheet uses the fund to cover left on their own holding losses, it is the opportunity cost because the funds are linked to assets. Otherwise, the funds could be used to reduce capital requirements. This phenomenon will be explained hereinafter.
