Capital in Excess of Par
Capital in Excess of Par, also known as Paid-in Capital in Excess of Par or Additional Paid-in Capital (APIC), is an equity account on a company’s balance sheet that represents the amount of money received from the issuance of shares above their par value. Par value, also called face value or nominal value, is a nominal amount assigned to a share of stock by the company when it is issued, and it is typically set at a minimal value (e.g., $0.01 or $1.00 per share).
When a company issues shares of stock to raise capital, it is common for the shares to be sold at a price higher than the par value. The difference between the actual price at which the shares are sold and the par value of the shares is recorded as Capital in Excess of Par.
Example of Capital in Excess of Par
Let’s consider a fictional example of a tech startup called “InnovateTech Inc.”
InnovateTech decides to raise capital by issuing shares of common stock to fund its growth and development. The company plans to issue 50,000 shares with a par value of $0.01 per share. After attracting investors, InnovateTech successfully sells the shares at a price of $20.00 per share.
Now, let’s calculate the Capital in Excess of Par for InnovateTech’s stock issuance:
- Number of Shares Issued: 50,000 shares
- Par Value per Share: $0.01
- Issue Price per Share: $20.00
- Apply the Capital in Excess of Par formula: Capital in Excess of Par = (Issue Price per Share – Par Value per Share) x Number of Shares Issued
Capital in Excess of Par = ($20.00 – $0.01) x 50,000 shares = $19.99 x 50,000 shares = $999,500
In this example, InnovateTech’s Capital in Excess of Par would be recorded as $999,500 on the company’s balance sheet. This amount represents the additional capital InnovateTech raised from investors beyond the nominal par value of the shares. It is part of the company’s total shareholders’ equity and can be used to fund its growth, research and development, or other business needs.