Chapter 4
Chapter 4
Chapter 4
EQUITY
Equity is defined as the residual interest in the assets of an entity after deducting all of the liabilities
Effects of change in accounting policy (retrospective application) or correction of prior period error (retrospective
restatement);
Total comprehensive income for the period; and
For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period,
showing separately changes resulting from:
a. profit or loss;
b. other comprehensive income; and
c. transactions with owners, e.g. contribution by and distribution to
Retrospective adjustment and retrospective restatements are presented in the statement of changes in equity as
adjustments to the opening balance of the retained earnings rather than as changes in equity during the period.
Components of equity include, for example, each class of contributed equity, the accumulated balance of each class of
other comprehensive income and retained earnings. (PAS 1. 108)
The statement of retained earnings shows the changes directly affecting the retained earnings of an entity.
The statement of retained earnings 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 are:
a. Net income or loss for the period
b. Prior period errors
c. Dividends declared and paid to shareholders
d. Effect the change in accounting policy
e. Appropriation of retained earnings
Illustration: Preparation of Changes in Equity
2021:
Entity A reported a profit of P200,000 and total comprehensive income of P220,000
2022:
Entity A issued additional shares with an aggregate par value of P500,000
Entity A reported other comprehensive income of P50,000 and total comprehensive income of P350,000
Entity A declared dividends of P100,000
Requirement: prepare the comparative Statement of Changes in Equity for the year ended December 31, 2022
Entity A
Statement of Changes in Equity
For the year ended December 31, 2022
EXAMPLAR COMPANY
Statement of Changes in Equity
For the year ended December 31, 2020
Retained
Share capital Reserves
earnings
Balance - January 1 5,000,000.00 2,000,000.00 1,000,000.00
Correction of errors resulting from prior year under
depreciation (100,000.00)
Change in accounting policy from weighted average to FIFO
– credit 300,000.00
Issuance of 10,000 ordinary shares with P100 par value at
P150 per share 1,000,000.00 500,000.00
Issuance of 5,000 preference shares with P50 par value at 250,000.00 250,000.00
P100 per share
Comprehensive income
Net income 1,550,000.00
Other comprehensive income 50,000.00
Dividends declared during the year (400,000.00)
Current appropriation for contingencies 200,000.00 (200,000.00)
Balances - December 31 6,250,000.00 3,000,000.00 2,150,000.00
EXAMPLAR COMPANY
Statement of Retained Earnings
For the year ended December 31, 2020
Problem 5-1
Reliable Company provided the following information for the year ended December 31, 2021
RELIABLE COMPANY
Statement of Retained Earnings
For the year ended December 31, 2021
PS at par 2,000,000.00
OS at par 3,000,000.00
share premium 1,000,000.00
RE beginning 1,000,000.00
Dividends - 700,000.00
Treasury - 500,000.00
Net income 2,200,000.00
Total 8,000,000.00