ISU MODULE TEMPLATE

Subject: INTERMEDIATE ACCOUNTING III

Title of the Module

Chapter 4: Statement of Changes in Equity
Learning Outcome
At the end of the chapter, the students should be able to:

 Prepare a Statement of Changes in Equity

 Differentiate between Statement of Profit or Loss and Other Comprehensive Income and Statement of Changes
in Equity

EQUITY

Equity is defined as the residual interest in the assets of an entity after deducting all of the liabilities

In a corporate entity, the following subclassification may be shown separately:

a. Share capital – funds contributed by shareholders equal to the par value or stated value
b. Share premium – funds contributed by shareholders in excess of par value or stated value
c. Retained earnings – which may be unappropriated or appropriated

STATEMENT OF CHANGES IN EQUITY

The statement of changes in equity shows the following information:

 Effects of change in accounting policy (retrospective application) or correction of prior period error (retrospective
restatement);
 Total comprehensive income for the period; and
 For each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period,
showing separately changes resulting from:
a. profit or loss;
b. other comprehensive income; and
c. transactions with owners, e.g. contribution by and distribution to

Retrospective adjustment and retrospective restatements are presented in the statement of changes in equity as
adjustments to the opening balance of the retained earnings rather than as changes in equity during the period.

Components of equity include, for example, each class of contributed equity, the accumulated balance of each class of
other comprehensive income and retained earnings. (PAS 1. 108)

STATEMENT OF RETAINED EARNINGS

The statement of retained earnings shows the changes directly affecting the retained earnings of an entity.
The statement of retained earnings is now part of the statement of changes in equity
The important data affecting the retained earnings that should be clearly disclosed in the statement of retained earnings are:
a. Net income or loss for the period
b. Prior period errors
c. Dividends declared and paid to shareholders
d. Effect the change in accounting policy
e. Appropriation of retained earnings
Illustration: Preparation of Changes in Equity

Entity A’s equity as of December 31, 2020 consists of the following:

Share capital 1,000,000.00

Retained earnings 700,000.00
Revaluation surplus 300,000.00
Total shareholders' equity 2,000,000.00

The following occurred during the 2021 and 2022

2021:
 Entity A reported a profit of P200,000 and total comprehensive income of P220,000
2022:
 Entity A issued additional shares with an aggregate par value of P500,000
 Entity A reported other comprehensive income of P50,000 and total comprehensive income of P350,000
 Entity A declared dividends of P100,000

Requirement: prepare the comparative Statement of Changes in Equity for the year ended December 31, 2022

Entity A
Statement of Changes in Equity
For the year ended December 31, 2022

Share capital Retained Revaluation Total equity

earnings surplus
Balance, January 1, 2021 1,000,000.00 700,000.00 300,000.00 2,000,000.00
Changes in equity for 2021
Profit for the year 200,000.00 200,000.00
Other comprehensive income 20,000.00 20,000.00
Total comprehensive income 220,000.00
Balance. December 31, 2021 1,000,000.00 900,000.00 320,000.00 220,000.00
Changes in equity for 2021
Profit for the year 300,000.00 300,000.00
Other comprehensive income 50,000.00 50,000.00
Total comprehensive income 350,000.00
Issue of share capital 500,000.00 500,000.00
Dividends (100,000.00) 100,000.00
Balance, December 31, 2022 1,500,000.00 1,100,000.00 370,000.00 2,970,000.00

EXAMPLAR COMPANY
Statement of Changes in Equity
For the year ended December 31, 2020

Retained
Share capital Reserves
earnings
Balance - January 1 5,000,000.00 2,000,000.00 1,000,000.00
Correction of errors resulting from prior year under
depreciation (100,000.00)
Change in accounting policy from weighted average to FIFO
– credit 300,000.00
Issuance of 10,000 ordinary shares with P100 par value at
P150 per share 1,000,000.00 500,000.00
Issuance of 5,000 preference shares with P50 par value at 250,000.00 250,000.00
 P100 per share
Comprehensive income
Net income 1,550,000.00
Other comprehensive income 50,000.00
Dividends declared during the year (400,000.00)
Current appropriation for contingencies 200,000.00 (200,000.00)
Balances - December 31 6,250,000.00 3,000,000.00 2,150,000.00

EXAMPLAR COMPANY
Statement of Retained Earnings
For the year ended December 31, 2020

Retained earnings, January 1 1,000,000.00

Correction of error - prior period under-depreciation (100,000.00)
Change in accounting policy from weighted average to FIFO inventory valuation
resulting in increase 300,000.00
Corrected beginning balance 1,200,000.00
Net income for the period 1,550,000.00
Dividends declared during the year (400,000.00)
Appropriated for contingencies (200,000.00)
Retained earnings, December 31 2,150,000.00

Problem 5-1

Reliable Company provided the following information for the year ended December 31, 2021

Retained earnings - unappropriated, January 1 200,000.00

Over-depreciation of 2020 due to prior period error 100,000.00
Net income for the current year 1,300,000.00
Retained earnings appropriated for treasury shares, original balance is P500,000 and
reduced by P200,000 by reason of reissue of the treasury shares 300,000.00
Retained earnings appropriated for contingencies, beginning balance P700,000 and
increased by current appropriation of P100,000 800,000.00
Cash dividends paid to shareholders 500,000.00
Change from FIFO to weighted average - credit 150,000.00

Required: prepare a statement of retained earnings for 2021

RELIABLE COMPANY
Statement of Retained Earnings
For the year ended December 31, 2021

Retained earnings - unappropriated, January 1 200,000.00

Correction of error:
Change from FIFO to Weighted average - credit 150,000.00
Over depreciation 100,000.00
Corrected beginning balance 450,000.00
Net income 1,300,000.00
Decrease in appropriation of Treasury 200,000.00
Dividends paid (500,000.00)
Appropriation for contingencies (100,000.00)
Retained earnings - December 31 1,350,000.00

Illustration: Shareholders’ Equity

The ledger of B Co. in 2021 includes the following:
 Share capital 100,000.00
Share premium 20,000.00
Retained earnings, appropriated 18,000.00
Retained earnings, unappropriated 42,000.00
Revaluation surplus 30,000.00
Remeasurement of the net defined benefit liability
(asset) – gain 15,000.00
Cumulative net unrealized gain on fair value changes
of investment in FVOCI 23,000.00
Effective portion of losses on hedging instruments in a
cash flow hedge 10,000.00
Cumulative translation loss on foreign operation 5,000.00
Treasury shares, at cost 13,000.00

Requirement: compute for the total shareholders’ equity.

Share capital 100,000.00

Share premium 20,000.00
Retained earnings - appropriated 18,000.00
Retained earnings - unappropriated 42,000.00
Revaluation surplus 30,000.00
Remeasurement of the net defined benefit liability (asset) - gain 15,000.00
Cumulative net unrealized gain on fair value changes of investment in FVOCI 23,000.00
Effective portion of losses on hedging instruments in a cash flow hedge (10,000.00)
Cumulative translation loss on foreign operation (5,000.00)
Treasury shares, at cost (13,000.00)
Total Shareholders' equity 220,000.00

Silver Company provided the following information at year-end:

Share premium 1,000,000.00

Accounts payable 1,100,000.00
Preference share capital, at par 2,000,000.00
Ordinary share capital, at par 3,000,000.00
Sales 10,000,000.00
Total expenses 7,800,000.00
Treasury shares - ordinary 500,000.00
Dividends 700,000.00
Retained earnings 1,000,000.00

Requirement: Compute for the shareholders equity at year end

PS at par 2,000,000.00
OS at par 3,000,000.00
share premium 1,000,000.00
RE beginning 1,000,000.00
Dividends - 700,000.00
Treasury - 500,000.00
Net income 2,200,000.00
Total 8,000,000.00