Statement of Changes in Equity (SCEI)

RECALL: The Business Entity Concept

 A prevailing assumption in accounting.
 It states that the transactions f the business (as a separate entity) must be distinguished and differentiated from
the transactions of the owners.
 Personal transactions must be kept in the records of the owners.

Types of Business Organization

SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities, income and expenses are centered or owned by only
one person (Haddock, Price, & Farina, 2012).
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or owned by two or more persons
(Haddock, Price, & Farina, 2012).
CORPORATION – An entity whose assets, liabilities, income and expenses are centered or owned by itself being a legally
separate entity from its owners. Owners are called shareholders or stockholders of the company (Haddock, Price, &
Farina, 2012).

STATEMENT OF CHANGES IN EQUITY

3. Differentiate the initial investment from the additional investments and define withdrawals
 Initial Investment – The very first investment of the owner to the company.
 Additional Investment – Increases to owner’s equity by adding investments by the owner (Haddock, Price, &
Farina, 2012).
 Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner (Haddock, Price, & Farina, 2012).
 *Distribution of Income – When a company is organized as a corporation, owners (called shareholders) do not
decrease equity by way of withdrawal. Instead, the corporation distributes the income to the Shareholders
based on the shares that they have (percentage of ownership of the company)
STATEMENT OF CHANGES IN EQUITY

4. Point out different parts of the Statement of Changes in Equity

a. Heading i. Name of the Company ii. Name of the Statement iii. Date of preparation (emphasis on the wording
– “for the”)
b. Increases to Equity i. Net income for the year ii. Additional investment
c. Decreases to Equity i. Net loss for the year ii. Withdrawals by the owner

5. Statement of Changes in Equity of a Partnership and a Corporation

The Statement of Changes in Partners’ Equity is used by a partnerships instead of the Statement of Changes in Owner’s
Equity. The differences between the two are as follows:
a. Title – instead of owner’s, partners’ is used to denote that this is a partnership
b. There are two or more owners in a partnership thus, the changes in the capital account of each partner is presented
c. The net income is divided between partners (not always equal. Based on the agreement. Example: 60:40, 40:60, etc.)

Medina and Detoya

Statemetn of Changes in Partner's Equity
For the Year Ended December 31, 2016

Medina Detoya Total

Original Investments P 400,000 P 800,000 P 1,200,000
Add: Additional Invesments 100,000 100,000
Total P 500,000 P 800,000 P 1,300,000
Less: Permanent Withdrawals 50,000 50,000
Balances P 500,000 P 750,000 P 1,250,000
Add: Profit 150,000 150,000 300,000
Total P 650,000 P 900,000 P 1,550,000
Less: Temporary Withdrawals 60,000 60,000 120,000
Partner's Equity, December 31 P 590,000 P 840,000 P 1,430,000
The Statement of Changes in Shareholders’ Equity is used by a corporation instead of the Statement of Changes in
Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation
b. There are an unlimited number of shareholders but unlike the partnership, the names of the shareholders are not
indicated here. Instead, the corporation keeps an official list with the corporate secretary
c. The capital account is called share capital (just like owner’s being shareholders)
d. Instead of additional investment, share issuances (happens when shares are sold to shareholders) increases the share
capital of a corporation
e. Instead of withdrawals, distribution of net income to shareholders decreases the Capital of the corporation
 SUYSAN PROPERTY CORPORATION
Statement of Chanes in Shareholder's Equity
For the Year Ended December 31, 2016

Unappropri Appropriat
Preference Ordinary Share ated ed Treasury
Share P100 Shares P10 Premium Retained retained Preferen
Par Par Ordinary Earnings earnings ce Shares Total
Balance Jan 1 P 500,000 P 1,000,000 P 300,000 P 150,000 P P 1,950,000
Profit 85,000 85,000
Cash
Dividends on
Preference - 25,000 - 25,000
Cash
Dividends on
Ordinary - 40,000 - 40,000
Issue of
Ordinary
5,000 shares 50,000 5,000 55,000
5% Share
Dividend on
Ordinary
5,250 Shares 52,500 26,250 - 78,750
Purchase of
Treasury
Stock - 30,000 - 30,000
Appropriatio
n for
Treasury
Stock - 30,000 30,000
Balance Dec.
31
P 500,000 P 1,102,500 P 331,250 P 61,250 P 30,000 P - 30,000 P 1,995,000

Questions:

Easy:
1. Which form of business organization puts the least risk on its owners?
Answer: Corporation
2. Which form of business organization is owned by only one person?
Answer: Single/Sole Proprietorship

Average:
1. Increases in owner’s equity without additional investment
Answer: Net income
2. Decreases to owner’s equity apart from net effect of revenues and expenses.
Answer: Withdrawal or Distribution of Income
Difficult
1. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000. No additional investments
and withdrawals for the period. Compute for total increase in equity for the year.
Answer: Increase is zero but decrease is P 45,000.
2. Ending owner’s equity amounted to P70,000. Additional investments during the year amounted to P30,000.
Withdrawals totaled P50,000. Compute for the company’s net income for the year assuming beginning equity is
P10,000.
Answer: P80,000