Category Archives: 4.6 Statement of Changes in Equity

Changes within share capital account – can there be any?

One question that sometimes arises is whether there can be any changes within an entity’s share capital. Short and simple answer is that ‘yes, there can be such changes’. More so, the changes can both be negative and positive.

A positive change that can take place relates to payments being made into the equity and in full or partially into the share capital. Occasions when you’d want to increase your share capital arise when you need extra funding for your company and you’re issuing more shares for instance or you need to meet the minimum requirements there may be imposed to your equity in total (i.e. it cannot be negative) and so on. In situations like these you’d consider paying into the share capital as well. Although, it should be mentioned that due to the restrictions there may be on reducing the capital, if decided so, the payment into the capital itself should be as minimal as possible.

Capital decreases happen mostly in two cases – when there’s simply too much share capital or when the company is winding down its business and decides to pay at least some of the capital back to its owners. Note that such action may be subject to dividend regulations (meaning also additional tax expense in most countries) and should be consulted with your local auditors or other officials for tax optimization advice.

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Statement of changes in equity

As a part of the Annual Report there’s always the statement of changes in equity presented. It’s not a statement on it’s own in your accounting, but in the Report it shows movements that happened in the equity accounts during the period. There aren’t many equity accounts, but nonetheless, they are important to a company. It’s the company’s capital, it’s reserves and it’s retained earnings. It’s what shows how viable a company is more or less.  Continue reading →

Dividends are always mentioned and disclosed on all statements they affect

Dividends as equity distribution transaction during the period are always disclosed within the Annual Report. They are to be disclosed as per every statement they affect and preferably also an extra note to the Annual Report should be prepared disclosing all relevant information to the transaction like amount paid per share etc.  Continue reading →

Why would someone recognize a ‘share premium’?

It’s another question, which I have received in real life. As it happens, when I first started in accounting, it was somewhat a mystery to me as well. As the name suggests, it’s related to ‘share capital’ and any change within is related to any transaction with shares. But the question, why would someone create this premium, still remains.

In short the theory behind the ‘share premium’ is as follows: in case issuing new shares one can determine the face and the nominal value of a new share. The difference between is shown as a ‘share premium’. The reason why those two values differ and are essentially used comes from legal requirements and not in what you may be thinking now. By law no-one can oblige you to pay more than the nominal value stated but in case the face value or the price to be paid is determined by the shareholders to be different from the nominal value, it’s the amount that needs to be paid. Just for clarification, to put things into figures, if a nominal value of a share is 100 and the face value is 150, than the 150 is the amount that needs to be paid.
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