Economics Title

Construct a Changes in Equity Statement

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Priya Kaur

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Christian Bien

Learning Objectives

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Worked Example: Beyonds Skate Ltd
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Below is a worked example of the step-by-step process of constructing a simple Statement of Changes in Equity. Beyonds Skate Ltd is a public Company which retails skateboards to the general public. It made the following entries in its Accounting system during the year ended 30 June 2021. 

  • Issued 25,000 shares at $1 each. Share issue costs were $5,000. 

  • Recorded a total comprehensive income of $25,000. This included a $3,000 increase in Asset Revaluation. The remainder was profit after tax. 

  • Paid a total of $15,000 in the form of dividends to shareholders. 

  • Transfer $8,000 from the Retained Earnings account to the General Reserve. 

The account balances as at 1 July 2020 are as follows: 

  • Share Capital: $30,000 

  • Asset Revaluation Reserve: $5,000 

  • General Reserve: $1,000 

  • Retained Earnings: $10,000 

Based on the above entries, construct a Statement of Changes in Equity for the Year Ended 30 June 2021.

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Step 1: Construct the Statement of Changes in Equity Framework and Include Relevant Transactions
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Above shows the framework for the Statement of changes in Equity. Include all relevant equity moving transactions. 


The following transactions below are relevant: 

  • Issue of Shares: Increases share capital. 

  • Share Issue Costs: Decreases share capital. Show calculations of the reduction in share issue.

  • Total Comprehensive Income 

  • Dividends paid 

  • Transfer to General Reserve

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Step 2: Complete the Share Capital
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In this step we put through the relevant numbers relating to the Share Capital Account. In the first row we include the opening balance, in this case it is $30,000. In the subsequent rows we record the changes relating to this equity account, which include: 

  • Issue of Shares: Increase of $25,000 (25,000 shares * $1 per share) 

  • Share Issue Costs: ($5000) - Brackets to show negative effect on the Share Capital Account. On the last row, as we have included all relevant transactions, we finalise with the Balance at the End of the Period on 30 June 2021. 

  • Closing Balance = $30,000 (Opening Balance) + $25,000 (Issue of Shares) - $5,000 (Share Issue Costs) Closing Balance = $50,000

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Step 3: Complete the Asset Revaluation Reserve
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In this step we put through the relevant numbers relating to the Asset Revaluation Account. This account measures any gains from the upwards/downwards revaluation of assets. In the first row we include the opening balance, in this case it is $5,000. 


Following from the opening balance, there is only one transaction relevant to this account, it is the $3,000 in the increase of an asset's value. 


On the last row, as we have included all relevant transactions, we finalise with the Balance at the End of the Period on 30 June 2021. Closing Balance = $5,000 (Opening Balance) + $3,000 (Increase in Asset Revaluation) Closing Balance = $8,000

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Step 4: Complete the General Reserve
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In this step we put through the relevant numbers relating to the General Reserve Account. This account records profits transferred to or from the retained earnings account. It can be used in the future to pay dividends or to issue bonus shares. 


In the first row we include the opening balance, in this case it is $1,000. Following from the opening balance, there is only one transaction relevant to this account, it is the $8,000 transfer from the the Retained Earnings. As this is a transfer, we can include the ($8,000) under the Retained Earnings header. 


On the last row, as we have included all relevant transactions, we finalise with the Balance at the End of the Period on 30 June 2021. Closing Balance = $1,000 (Opening Balance) + $8,000 (Transfer from Retained Earnings) Closing Balance = $9,000

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Step 5: Complete the Retained Earnings
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In this step we put through the relevant numbers relating to the Retained Earnings Account. The retained earnings account shows the profits not distributed to shareholders and that is retained in the business for future use. In the first row we include the opening balance, in this case it is $10,000. 


In the subsequent rows we record the changes relating to this equity account, which include: 

  • Total Comprehensive Income: $22,000 ($25,000 less $3,000 from Asset Revaluation) - Dividends: $15,000 

  • Transfer to General Reserve: $8,000 

On the last row, as we have included all relevant transactions, we finalise with the Balance at the End of the Period on 30 June 2021. Closing Balance = $10,000 (Opening Balance) + $22,000 (Total Comprehensive Income) - $15,000 (Dividends) - $8,000 (Transfer to General Reserve) Closing Balance = $9,000

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Step 6: Finalise the Total Equity Section and Check Answers
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Lastly, we complete the last column by adding the previous columns together. If the sum of the last row equals to the sum of the last column, then are balances are correct. If not, there has been a calculation error or an equity transaction that has been missed. 


Last Row: = 50,000 (Share Capital) + 8,000 (Asset Revaluation) + 9,000 (General Reserve) +9,000 (Retained Earnings) = 76,000 


Last Column: = 46,000 (Opening Balance) + 25,000 (Issue of Shares) - 5,000 (Share Issue Costs) + 25,000 (Total Comprehensive Income) - 15,000 (Dividends) + 0 (Transfer to General Reserve) = 76,000 


As the last row and the last column add up to 76,000, the Statement of Changes in Equity has been calculated correctly.

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