Purpose of Statement of Changes in Equity | Accounting

This statement is meant for displaying the movement in equity during the accounting period.

Examples equity components are:

i. Equity share capital.

ii. Retained earnings:

This an account of undistributed profit presented in the Statement of Income in earlier accounting years and profit during the year other than the portions which are set aside under specific reserves includ­ing reserves created to comply with statutory requirements. Examples of these reserves are Debenture Redemption Reserve, Capital Redemption Reserve, Dividend Equalisation Reserve, Reserve for Shipping Business.

iii. Securities premium:

Additional part of the equity share capital over and above the face value of equity shares.

iv. Revaluation Reserve:

Represents unrealised fair value gain in property, plant and equipment or intangible assets.

v. Fair Value Reserve of Available for Sale Financial Assets:

Represents unrealised fair value gain or loss in financial assets classified as available for sale.

IAS 1 set out the principles for presentation of Statement of Changes in Equity.

This statement reflects:

i. Various components of the equity (refer to Table 10.1 for an illustrative Statement) with separate presentation of non-controlling interest;

ii. Distribution of total comprehensive income during the year to various equity components and non-controlling interest;

iii. Distribution to owners by way of dividend and other transaction with owners like issue of shares. This statement makes reconciliation of balances of various equity components at the beginning and end of the accounting period. IAS 1 particularly requires disclosures of dividend recognised and distributed either in the State­ment of Changes in Equity or in Notes along with per share information. An illustrative Statement (developed in accordance with Implementing Guid­ance of IAS 1) is presented below in Table 10.1.

Equity Share Capital:

Equity share capital is aggregate amount paid on shares and/or stock of a company. In India, disclosures are made about authorised, issued and paid up capital.

Authorised Share Capital:

The number and par value of each class of shares that an entity may issue in accordance with authorisation granted in its letter of incorporation. This is also referred to as nominal share capital.

Issued Share Capital:

It is that portion of the authorised capital which is being actually offered for subscription. This includes any bonus shares issued by a company.

Subscribed capital:

It is that portion of the issued capital which is being actually subscribed.

Paid up share capital:

It is that portion of the issued and subscribed capital which has been actually paid.

Check below how BHEL presented information about its share capital. It is to be remembered that there is no need to present Statement of Changes in Equity but a company is required to disclose information about the equity.

From the details of the share capital BHEL, you can make out that nominal value (face value) of BHEL’s each equity share is Rs.10. There was change in the authorised, issued, subscribed and paid capital during the year. This increase was because of issue of bonus shares and for consideration other than cash. Consideration other than cash implies that it was an exchange transaction. The company has not explained the nature of exchange transaction.

Securities Premium:

This account represents additional amount charged over and above the nominal value from the equity shareholders. In India, this additional charge for issue of shares is separately accounted for and used only for specified purposes.