Statement Change of Equity

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STATEMENT OF CHANGES

IN EQUITY

COURSE LEARNING OUTCOMES


At the end of the module, you should
be able to:
1. Understand the concept of equity
2. Know the preparation of the
statement of changes in equity
3. Identify the components of equity
4. Identify the items directly affecting
retained earnings

INTERMEDIATE
ACCOUNTING III
Statement of Changes in Equity
Equity (owners’, partners’, or shareholders’) represents the interest of the owners in the net
assets of an entity and shows the cumulative net results of past transactions and other
events affecting the entity since its inception. The statement of changes in equity reflects
the increases and decreases in the net assets of an entity during the period. In
accordance with PAS 1, all changes in equity from transactions with owners are to be
represented separately from nonowner changes in equity.

PAS 1 requires an entity to present a statement of changes in equity including the following
components on the face of the statement:

1. Total comprehensive income for the period, segregating amounts attributable to


owners and to noncontrolling interest;
2. The effects of retrospective application or retrospective restatement in accordance
with PAS 8, separately for each component of equity;
3. Contributions from and distributions to owners; and
4. A reconciliation between the carrying amount at the beginning and the end of the
period, separately disclosing each change, for each component of equity.

The amount of dividends recognized as distributions to equity holders during the period,
and the related amount per share should be presented either on the face of the statement
of changes in equity or in the notes.

According to PAS 1, except for changes resulting from transactions with owners (such as
equity contributions, reacquisitions of the entity’s own equity instruments, dividends, and
costs related to these transactions with owners), the change in equity during the period
represents the total amount of income and expense (including gains and losses) arising
from activities other than those with owners.

The following should be disclosed, either in the statement of financial position or the
statement of changes in equity, or in the notes:

1. For each class of share capital


• Number of shares authorized;
• Number of shares issued and fully paid, and subscribed but not fully paid;
• Par value per share, or that the shares have no par value;
• Recognition of the number of shares outstanding at the beginning and at the end
of the periods;
• Any rights, preferences and restrictions attached;
• Shares in the entity held by the entity or its subsidiaries; and
• Shares reserved for issue under options and contracts for the sale of shares,
including terms and amounts.
2. A description of the nature and purpose of each reserve within equity.
Illustration:

ABC COMPANY
Statement of Changes in Equity
For the Year Ended December 31, 2021
In Thousand Pesos

Gain
Share Share Revaluation Retained Treasury Total
(Loss) on
Capital Premium Surplus Earnings Shares Equity
FA – OCI
Balances, 1/1/2021 8,000 2,500 800 23 3,000 200 14,123
Issue of new shares 1,200 300 1,500
Profit for the year 1,700 1,700
Cash dividends (450) (450)
Sale of treasury shares 20 60 (40)
Revaluation surplus
transferred to (40) 40 -
Retained Earnings
Decrease in fair value
(30) (30)
of FA-OCI
Balances, 12/31/2021 9,200 2,820 760 (7) 4,290 260 16,803

Statement of Retained Earnings


The statement of retained earnings shows the changes affecting directly the retained
earnings (accumulated profits or losses) of an entity. It is now part of the statement of
changes in equity.

The important data affecting the retained earnings that should be clearly disclosed in the
statement of retained earnings is shown in the template below:

ABC COMPANY
Statement of Retained Earnings
For the Year Ended December 31, 2021

Retained earnings, January 1, 2021 - Unadjusted XX


Correction of prior period errors XX
Effect of change in accounting policy XX
Retained earnings, January 1, 2021 – Adjusted XX
Net income (loss) for the year XX
Dividends declared (XX)
Decrease (Increase in Retained earnings appropriated) XX
Retained earnings, December 31, 2021 XX
The reconciliation of the beginning to the ending balance in retained earnings provides
information about why net assets increased or decreased during the period. The
association of dividend distributions with net income for the period indicates what
management is doing with earnings: It may be “plowing back” into the business part or all
of the earnings, distributing current income, or distributing current income plus the
accumulated earnings of prior years.

Except for prior period errors and change in accounting policy which are covered in
succeeding modules of this course, accounting for these data found in the Statement of
Changes in Equity (including Retained Earnings) were discussed in AE 211.

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