SHAREHOLDERS EQUITY

Shareholders equity is the amount that the owners of a company have invested in their
business. This includes the money they’ve directly invested and the accumulation of
income the company has earned and that has been reinvested since inception.
There are four categories of shareholders equity
COMMON SHARES
- Common shares are issued to business owners and other investors as proof of the
money they have paid into a company. Of all shareholders, common shareholders have
the least claim on a company’s assets.
- Owners of common and preferred shares are typically compensated with
dividends. Common shareholders are paid dividends after preferred shareholders. In
the event that a company needs to sell off its assets, common shareholders are not paid
until all creditors have been satisfied and the preferred shareholders have been
reimbursed.

Because shares are unsecured investments, a company is not required to repay

shareholders for their original investment unless it legally declares that it will.

PREFFERED SHARES
- Preferred shares are issued to business owners and other investors as proof of the
money they have paid into a company. 

- Like common stock, preferred share investments are unsecured, but they are
issued with specific terms of payment. Payments occur in the form of
dividends. The payments are not a legal requirement until they are declared by
the company.
- Preferred shareholders stand ahead of common shareholders in the payment
of dividends and they have a priority claim to assets if the company is
liquidated. They are paid as soon as all obligations to creditors have been met.
Common shareholders come after. It is this “preferential” treatment that
explains the name of the holders of these shares.

RETAINED EARNINGS

- Retained earnings are the amount of profit a company has left over after paying all its
direct costs, indirect costs, income taxes and its dividends to shareholders. This
 represents the portion of the company’s equity that can be used, for instance, to
invest in new equipment, R&D, and marketing.
- When accumulated year after year, retained earnings are known as “accumulated
profits.”
- Your business’s retained earnings is something banks look at before lending you an
additional amount.

PAID-IN CAPITAL

- Paid-in capital represents the funds raised by the business through

selling its equity and not from ongoing business operations.
- Paid-in capital is the full amount of cash or other assets that
shareholders have given a company in exchange for stock, par value
plus any amount paid in excess.
- Additional paid-in capital refers to only the amount in excess of a
stock's par value.
- Paid-in capital can be a significant source of capital for projects and
can help offset business losses.

There are two components of shareholders Equity

1. Share Capital – refers to the amount of money the owners of a company have invested
in the business as represented by common and/or preferred shares.
2. Subscribed share capital- Subscribed share capital refers to any capital raised through
subscribed shares. Put simply, it's the value of all the shares that investors agree to
purchase during a new issuance. Subscribed shares are a certain amount of stock that
investors promise to purchase during an offering, usually through an IPO.
3. Share premium- Share premium is the excess money received for issued shares
above the par value. The share premium account is a reserve account whose funds
can only be used for purposes provided in the corporate bylaws, such as for share issue
costs or issuance of bonus shares, but cannot be used for dividends.
4. RETAINED EARNINGS- the sum of a company’s earnings from prior periods, after
deducting any dividends paid to the company’s shareholders.
It may be classified into two

Unappropriated retained earnings- Unappropriated retained earnings are the

portion of retained earnings not assigned to a specific business purpose.
Appropriated retained earnings- Appropriated retained earnings are set aside
by the board and are assigned to a specific purpose, such as factory
construction, hiring new labor, buying new equipment, or marketing
  Deficit- A deficit occurs when expenses exceed revenues, imports
exceed exports, or liabilities exceed assets in a particular year.

Revaluation surplus
Revaluation Surplus is an equity account where all upwards
adjustments in the value of a company’s assets are systematically
recorded. Some companies revalue their assets to determine the
recent market value of their assets.
Depreciated replacement cost or Sound Value is an optimised form of
replacement cost method to make the estimate more realistic by adding the
aspect of depreciation to a simple replacement cost concept for valuation
purposes.
Carrying amount - The carrying amount is the original cost of an asset as reflected in a
company's books or balance sheet, minus the accumulated depreciation of the asset.

Outstanding shares- Shares outstanding refer to a company's stock currently held by all
its shareholders, including share blocks held by institutional investors and restricted
shares owned by the company's officers and insiders. Outstanding shares are shown on a
company's balance sheet under the heading “Capital Stock.”

5. Treasury stock - Treasury stock, also known as treasury shares or reacquired stock,
refers to previously outstanding stock that has been bought back from
stockholders by the issuing company. The result is that the total number of
outstanding shares on the open market decreases.

Reserves

In the literal sense, a reserve can be defined as earnings that have been kept
aside for a specific purpose. One can explain reserve meaning in accounting
by describing it as the portion of available earnings that business owners
keep aside to meet any sort of financial contingencies.

Specific Reserve

Special reserves are funds that are created by business owners to meet
specific financial obligations. The dividend equalisation reserve, reserve for
asset replacement, reserve for debenture redemption and reserve for capital
redemption are among the most common examples of specific reserves. 
Shareholders’ equity is one of the first things bankers and other analysts look at when
evaluating a company’s financial health and stability.
The relationship between equity, assets and liabilities also reveals:

 the company’s cumulative financial progress

 how much owners have reinvested in the business
 the owners’ long-term commitment to the company

The formula: Assets equal liabilities plus shareholders’ equity. Dividends are included in the
calculation of shareholders’ equity. They are subtracted from cumulative retained earnings
and current-year net income to arrive at the retained earnings for the current year.
Shareholders' Equity = Total Assets – Total Liabilities