FUNDAMENTALS OF ABM : STATEMENT OF CHANGES IN EQUITY

STATEMENT OF CHANGES IN EQUITY – All changes, whether increases or decreases

to the owner’s interest on the company during the period are reported here. This statement is
prepared prior to preparation of the Statement of Financial Position to be able to obtain the
ending balance of the equity to be used in the SFP.
SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities, income and
expenses are centered or owned by only one person
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or
owned by two or more person.
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
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
Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner
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 OF SOLE PROPRIETORSHIP

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
 STATEMENT OF CHANGES IN EQUITY OF PARTNERSHIP

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.)

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
 SEATWORK. Compute the missing element for each independent case

PERFORMANCE TASK. ANALYZE AND SOLVE EACH PROBLEM. SHOW YOUR

SOLUTIONS.
1. The beginning owner’s equity amounted to P 500,000. The business incurred a P62,000net
loss for the year. No additional investments and withdrawals for the period. Compute for a
total increase in equity for the year.

2. Ending owner’s equity amounted to P90,000. Additional investments during the year
amounted to P30,000. Withdrawals totaled P10,000. Compute for the company’s net income
for the year assuming beginning equity is P50,000.

3. The beginning capital of Mr. Coco to start his business is P380,000. During the year, Mr.
Coco invested additional P70,000 cash and incurred a net loss of 53,000. How much is the
balance of Mr. Coco’s ending balance at the end of the year?

4. Carlo invested an initial capital amounting P50,000 to put up his buy and sell business.
During the first year of operations (2018), the company had a total net loss of P5,000.
Because of this, Carlo invested additional P50,000 cash in 2019. In the second year (2019),
the company had a net income of P60,000 and Juan withdrew P10,000 for
personal use. Compute for the ending capital balance of Juan for the year 2019.

5. Maria invested P150,000 to start her beauty salon business. During the first year of
operations (2018), the company had a net income of P30,000. Maria invested an additional
P50,000 to grow the business. In 2019, the business earned P75,000. As of December 31,
2019, Maria’s capital balance is P270,000. How much is Maria’s
withdrawal?
6. Owner, Juan invested an initial capital amounting P50,000 in order to put up his
janitorial services company. During the first year of operations (2016), the company
had a loss of P25,000. Because of this, Juan invested additional capital amounting to
P50,000 in 2017. In the second year (2017), the company had a net income of
P100,000 and Juan withdrew P10,000 for personal use. Compute for the ending capital
balance of Juan for THE YEAR 2017.

7. Owner Juana invested P100,000 to start her laundry business. During the first year of
operations (2016), the company had a net income of P15,000. Juana invested
additional P100,000 to grow the business. In 2017, the business earned P50,000. As of
December 31, 2017, Juana’s capital balance is P200,000. How much is Juana’s
withdrawal?

Prepare the Statement of Changes in Equity of the following

8. The following balances were retrieved from the records of Juan’s Janitorial Services
for the year ended December 31, 2016:

Capital, January 1, 2016 P 500,000

Withdrawals 100,000
Additional Investments 50,000
Net Loss 45,000

9. In 2019, Marie, the owner of Gatan Law Firm, has a beginning capital balance of
P672,000. During the year, Gatan Law Firm earned a net income of P260,300. Also,
she invested additional cash of P100,000 in the business. Furthermore, Marie got
hospitalized and withdrew P50,000 for the payment of her hospital bill. How much is
the ending capital balance of Gatan Law Firm as of December 31, 2019?

10.Labanderyo Laundry Shop is owned by Mr. Deryo Laban. Labanderyo Laundry

Shop’s capital balance as of January 2019 is P250,000. Due to cash shortage problem,
he invested additional cash of P160,000. Furthermore, Labanderyo Laundry shop
incurred a net loss of P75,000. His capital balance as of December 31, 2019 is P
320,000. How much is Mr. Laban’s withdrawal for the year?