Accounting Financial Statements – Part 8 – Statement Of Changes In Equity

Accounting Financial Statements – Part 8  – 
Statement Of Changes In Equity

Accounting Financial Statements – Part 8 – Statement Of Changes In Equity – related to this are;  ifrs income statement format, statement of profit and loss and other comprehensive income format, ias 1 presentation of financial statements format, ifrs financial statements template excel, ifrs balance sheet format, ias 1 presentation of financial statements pdf, sample disclosure notes to financial statements,
first year of operation financial statements.
In our previous seven write-ups on this topic, we have continued to point out the composition and the general purpose of the financial statements to provide information about the results of operations, financial position, and cash flows of an organisation. Emphasising that these information are used by the users of financial statements to make economic decisions regarding the allocation and reallocation of resources.

Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

Therefore, in this article number eight, we want to highlight the composition, purpose and uses of the fourth element of financial statements – statement of changes in Equity. It will be better to read the entire eight topic in this series together so as to derive maximum knowledge out of it. They are aimed at enriching your knowledge on how to run your business; investor to be able to assess his/her investments and students to really make a comprehensive understanding of their knowledge on this topic. 
As a matter of fact, most classroom students don’t have as much information as are exposed here.  Complete Full Marks Consultants Limited (CFMC Ltd ) welcomes enquiries for further information on these especially on what it can do to help her client’s businesses grow. Consult us for your business coaching and management needs. Students writing their professional examinations of Institute of chartered Accountants of Nigeria (ICAN) in their two groups of exams, and those of Chartered Institute of Taxation of Nigeria, are advised to contact us for better arrangements on how they could tackle their examinations and pass with great ease.
Accounting Financial Statements - Part 8  -  Statement Of Changes In Equity


Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

What is Statement of Changes in Equity?

Statement of Changes in Equity, often referred to as Statement of Retained Earnings , details the change in owners’ equity over an accounting period by presenting the movement in reserves comprising the shareholders’ equity.
The statement of changes in equity is a reconciliation of the beginning and ending balances in a company’s equity during a reporting period. It is not considered an essential part of the monthly financial statements, and so is the most likely of all the financial statements not to be issued. Yet, it is a common part of the annual financial statements.  In most cases it is presented as a separate statement.
The statement starts with the beginning equity balance, and then adds or subtracts such items as profits and dividend payments to arrive at the ending  balance. The Statement of changes in equity equation is like this:
Beginning equity + Net income – Dividends +/- Other changes     =   Ending equity
The transactions most likely to appear on this statement are as follows:
  • Net profit or loss during the accounting period attributable to shareholders
  • Increase or decrease in share capital reserves
  • Dividend payments to shareholders
  • Gains and losses recognized directly in equity
  • Effect of changes in accounting policies
  • Proceeds from the sale of stock
  • Treasury stock purchases
  • Effects of changes due to errors in prior periods
  • Effects of changes in fair value for certain assets – revaluations surpluses/gain.


Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

To prepare the statement, follow these steps:

1. Create separate accounts in the general ledger for each type of equity. Thus, there are different accounts for the par value of stock, additional paid-in capital, and retained earnings. Each of these accounts is represented by a separate column in the statement.
2, Transfer every transaction within each equity account to a spreadsheet, and identify it in the spreadsheet.
3. Aggregate the transactions within the spreadsheet into similar types, and transfer them to separate line items in the statement of changes in equity.
4, Complete the statement, and verify that the beginning and ending balances in it match the general ledger, and that the aggregated line items within it add up to the ending balances for all columns.
Following is an illustrative example of a Statement of Changes in Equity prepared according to the format prescribed by IAS 1 Presentation of Financial Statements.

Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

XYZ Plc

Statement of changes in equity for the year ended 31st December 2016
                                                                  Share      Retained       Revaluation        Total
                                                                 Capital    Earnings         Surplus              Equity
Balance as at January 2016                             xx              xx                  –                   xx
Adjusted for change due for 2015 accounts:
Changes due to changes in Accounting policy     –                 –                  –                 –
Changes due to correction of prior year error        –                  –                  –                 –
Restated Balance                                                   xx               xx                  –                  xx
Adjust for Changes in equity for the year 2016:
Issue of share capital                                                –                 –                 –                     –
Income for the year                                                –                 xx              –                    xx
Revaluation gain                                                      –                  –               xx                 xx
Dividends                                                              –                (xx)              –                   (xx)
Balance as at 31 December 2016                          xx                 xx               xx                 xx


Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

Following are some explanations:

 Opening Balance
This represents the balance of shareholders’ equity reserves at the start of the comparative reporting period as reflected in the prior period’s statement of financial position. The unadjusted opening balance is then correction for prior period errors rectified in the current period and also the effect of changes in accounting policy implemented during the year as these are presented separately in the statement of changes in equity.
Effect of Changes in Accounting Policies
Since changes in accounting policies are applied retrospectively, an adjustment is required in stockholders’ reserves at the start of the comparative reporting period to restate the opening equity to the amount that would be arrived if the new accounting policy had always been applied.
Effect of Correction of Prior Period Error
The effect of correction of prior period errors must be presented separately in the statement of changes in equity as an adjustment to opening reserves. The effect of the corrections may not be netted off against the opening balance of the equity reserves so that the amounts presented in current period statement might be easily reconciled and traced from prior period financial statements.
Restated Balance
This represents the equity attributable to stockholders at the start of the comparative period after the adjustments in respect of changes in accounting policies and correction of prior period errors as explained above.
Changes in Share Capital
Issue of further share capital during the period must be added in the statement of changes in equity whereas redemption of shares must be deducted therefrom. The effects of issue and redemption of shares must be presented separately for share capital reserve and share premium reserve
.
Dividends
Dividend payments issued or announced during the period must be deducted from shareholder equity as they represent distribution of wealth attributable to stockholders.
Income / Loss for the period
This represents the profit or loss attributable to shareholders during the period as reported in the income statement.

Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

Changes in Revaluation Reserve
Revaluation gains and losses recognised during the period must be presented in the statement of changes in equity to the extent that they are recognised outside the income statement. Revaluation gains recognised in income statement due to reversal of previous impairment losses however shall not be presented separately in the statement of changes in equity as they would already be incorporated in the profit or loss for the period.
Other Gains and Losses
Any other gains and losses not recognised in the income statement may be presented in the statement of changes in equity such as actuarial gains and losses arising from the application of IAS 19 Employee Benefit.
Closing Balance
This represents the balance of shareholders’ equity reserves at the end of the reporting period as reflected in the statement of financial position.

The question is, why do you need this statement?

 Statement of changes in equity helps users of financial statement to identify the factors that cause a change in the owners’ equity over the accounting periods. Whereas movement in shareholder reserves can be observed from the balance sheet, statement of changes in equity discloses significant information about equity reserves that is not presented separately elsewhere in the financial statements which may be useful in understanding the nature of change in equity reserves. 
Examples of such information include share capital issue and redemption during the period, the effects of changes in accounting policies and correction of prior period errors, gains and losses recognised outside income statement, dividends declared and bonus shares issued during the period.

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Accounting Financial Statements – Part 8  –  Statement Of Changes In Equity

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