What is the significance of reconciling the basis?

It defines the amount of dividends that can be withdrawn by shareholders as a taxable or nontaxable dividend.

When the basis is negative, it aids in determining whether it should be classified as a shareholders' loan , capital gain or treat it a salary. In some situations, such as excessive losses or negative equity, the difference can be classified as a shareholder loan. It is recorded as a shareholders loan on the asset shelf and credit to distribution in equity section to balance the balance sheet.

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