Statement of Changes in Equity
A Statement of Changes in Equity (often referred to as the “Statement of Stockholders’ Equity” or “Equity Statement”) is one of the core financial statements, particularly for corporations. It provides a detailed account of the changes in a company’s equity over a specific period, such as a quarter or a year.
The Statement of Changes in Equity typically captures:
- Opening Balance of Equity: This is the equity value at the beginning of the reporting period.
- Total Comprehensive Income for the Period: This includes net profit or loss and other comprehensive income (OCI). OCI consists of certain gains and losses that are not recognized in the profit or loss but directly in equity, such as unrealized gains/losses on available-for-sale financial assets.
- Transactions with Owners, Recorded Directly in Equity: This includes:
- Contributions by and distributions to owners: For instance, issuance of new shares, repurchase (buyback) of shares, and payment of dividends.
- Changes in ownership interests in subsidiaries that do not result in a loss of control.
- Closing Balance of Equity: This is calculated by considering all the above factors and provides the equity value at the end of the reporting period.
The format and details might vary depending on the complexity of the company’s equity structure and applicable accounting standards.
Example of a Statement of Changes in Equity
Let’s provide a more detailed example for a fictional company named “CleanWave Technologies Ltd.” to illustrate how the Statement of Changes in Equity is presented:
CleanWave Technologies Ltd.
Statement of Changes in Equity
For the Year Ended December 31, 2023
Components of Equity:
- Share Capital
- Share Premium
- Retained Earnings
- Other Comprehensive Income (OCI)
- Total Equity
| Share Capital | Share Premium | Retained Earnings | OCI | Total Equity | |
|---|---|---|---|---|---|
| Opening Balances | $200,000 | $50,000 | $40,000 | $5,000 | $295,000 |
| New Shares Issued | $25,000 | $15,000 | – | – | $40,000 |
| Net Profit for the Year | – | – | $60,000 | – | $60,000 |
| Dividends Paid | – | – | ($20,000) | – | ($20,000) |
| Unrealized Gain on Investments | – | – | – | $3,000 | $3,000 |
| Closing Balances | $225,000 | $65,000 | $80,000 | $8,000 | $378,000 |
From this Statement of Changes in Equity for CleanWave Technologies Ltd.:
- The company started the year with an equity consisting of:
- Share Capital: $200,000
- Share Premium: $50,000 (amount received from shareholders over the nominal value of shares during issuance)
- Retained Earnings: $40,000 (accumulated past profits minus dividends)
- Other Comprehensive Income (OCI): $5,000 (this is an unrealized gain or loss; in this case, it might be an unrealized gain from certain investments or foreign currency translation adjustments)
- During the year:
- CleanWave issued new shares, which increased the Share Capital by $25,000 and the Share Premium by $15,000.
- The company posted a net profit of $60,000.
- CleanWave paid dividends amounting to $20,000.
- The company had an unrealized gain on certain investments, which increased the OCI by $3,000.
- By the end of the year:
- The total equity of CleanWave stands at $378,000. This comprises the Share Capital ($225,000), Share Premium ($65,000), Retained Earnings ($80,000), and OCI ($8,000).
This statement provides stakeholders, especially shareholders, a comprehensive view of the changes in the equity section of the company’s balance sheet over the year.
