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Discy Latest Questions

  1. This answer was edited.

    Equity in accounting refers to the sum of money that is returned or paid to the owners/shareholders at the time of winding up of the company once all of the assets are liquidated and the liabilities are paid off. It is generally referred to as Shareholder's equity or Owner's equity. It can also be cRead more

    Equity in accounting refers to the sum of money that is returned or paid to the owners/shareholders at the time of winding up of the company once all of the assets are liquidated and the liabilities are paid off. It is generally referred to as Shareholder’s equity or Owner’s equity. It can also be calculated with the help of a formula derived from the accounting equation which is as follows:

    EQUITY = TOTAL ASSETS – TOTAL LIABILITIES 

    Treatment of equity in accounting

    Equity is shown in the balance sheet under shareholder’s equity, which is a result of the difference between the total assets and total liabilities of the company. I would like to explain this concept further with the help of an example which is as follows:

    Example

    The following is the balance sheet of XYZ Ltd. which shows their Equity, Liability, and Assets during the current financial year.

    Balance sheet as at 31st March, yyyy

    PARTICULARSNOTE NO.AMOUNT
    EQUITY AND LIABILITIES
    Shareholder’s Fund
    Share capital1,00,000
    Reserves & Surplus40,000
    Non-Current Liabilities
    Long- Term Borrowings14,000
    Current Liabilities
    Short term borrowings3,000
    Trade Payables6,000
    Short Term provision3,000
    Total1,66,000
    ASSETS
    Non-Current Assets
    Fixed assets1,10,000
    Current assets
    Inventories20,000
    Trade Receivables30,000
    Cash and bank balance6,000
    Total1,66,000

    NOTE: As mentioned earlier, equity represents the difference between the total assets and total liabilities which can be easily recognized in the balance sheet given above.

    Total Assets = 1,66,000

    Total Liabilities = 26,000

    Equity = Total assets – Total liabilities

    = 1,66,000 – 26,000

    = 1,40,000 

    Hope this helps.

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  1. This answer was edited.

    We will first quickly run through the concept of equity - Equity is the capital raised by a company for the purpose of purchase of assets or for making an investment in a specific project or for the smooth functioning of operations. It's important as it represents the value of an investor's stake inRead more

    We will first quickly run through the concept of equity –

    Equity is the capital raised by a company for the purpose of purchase of assets or for making an investment in a specific project or for the smooth functioning of operations. It’s important as it represents the value of an investor’s stake in a company.

    It can also be aid that its the sum of money that the company is required to pay at the time of its liquidation to its shareholders after realising all of its assets and paying off all of its debts. Equity is presented in the financial statement as a component of a Balance Sheet.

    The formula for calculating the company’s equity –

    Shareholder’s Equity = Total Assets – Total Liabilities

    Inclusive list of items under the head” Equity”

    Particulars
    Equity Share Capital
    Reserves and surplus 
    1. Securities Premium Reserve
    2. General Reserves
    3. Capital Redemption Reserve
    4. Revaluation Reserve
    5. Debenture Redemption Reserve
    6. Share Option Outstanding Account
    7. Others- (Specify the Nature and Purpose of such reserve)
    8. Retained Earnings
    Other Comprehensive Income
    1.  Foreign Currency Translation Reserve
    2.  Cash Flow Hedge Reserve
    Vesting and Exercise of Warrants
    Issuance of Non-Controlling Interest
    Repurchase of Stock option
    Issuance of Common Stock
    Stock-Based Compensation
    Exercise of Stock Options
    Additional Paid-in Capital
    The Cumulative Effect of Changes in Accounting Principles related to Revenue Recognition, Income Taxes and Financial Instruments

    It is generally presented under two subheads – Equity and Other Equity.

    The extract shown below indicates the position of Equity in a Balance Sheet –

    Equity in Balance Sheet

     

     

     

     

     

     

     

     

     

    I hope this answers your question.

     


    Aastha

     

     

     

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