Updated: Sep 2, 2019
Entities using International Financial Reporting Standards (IFRS) must include a Statement of Changes in Equity as part of their financial statements. This statement reconciles the beginning and ending balances of various equity elements. Elements include: Share Capital, Contributed Surplus, Accumulated Other Comprehensive Income and Retained Earnings.
Share Capital refers to the value of company shares that have been distributed in return for funds. Shares can be common or preferred. These are discussed in more detail in a later article.
Contributed Surplus refers to the amount, above par value, at which shares are sold. Par value is the value at which the company is authorized to sell according to the company's charter. This is essentially the price at which the shares were initially offered for sale. When shares are sold above their par value, the difference is added to Contributed Surplus.
Accumulated Other Comprehensive Income is the accumulation of OCI. OCI is used to show unrealized gains and losses from revaluations of fixed assets, currency hedging, pension plans and other non-standard or unrealized sources of gains. This is discussed in more detail in previous article.
Retained Earnings: refers to the earnings that have been retained at the end of the period. The formula is simply:
Revenues - Expenses = Retained Earnings
Creating a Statement of Changes in Equity is a fairly simple process. We review each equity-related transaction and we include it, row-by-row in the Statement. The totals are added both horizontally and vertically to ensure all of the transactions reconcile at the end of the period. A template Statement of Changes in Equity can be found below.
The numbered variables indicate that the same value is used in one or more places within the table. Double XX indicates the sum of the row or column.
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