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 –
I hope this answers your question.
Aastha
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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:
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
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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