Limited Company Accounting

Statement of Changes in Equity

Purpose

The statement of changes in equity is a note to the financial statements (not a financial statement itself). It shows, column by column, every transaction that altered the equity section of the statement of financial position between the opening and closing dates.

The Four Equity Columns

Types of Share Issue

Ordinary Share Issue (at a premium)

Shares issued above nominal value. Proceeds split between share capital (nominal) and share premium (excess).

Example: 100 000 shares with £0.50 nominal value issued at £0.80 each:

• Share capital: 100 000 × £0.50 = £50 000
• Share premium: 100 000 × (£0.80 − £0.50) = £30 000
• Total cash raised: £80 000

Rights Issue

Existing shareholders are offered new shares in proportion to their current holding, usually at a discount to market price.

Example: 1 for 4 rights issue at £0.70 (nominal £0.50). Existing shares: 800 000.

• New shares: 800 000 ÷ 4 = 200 000
• Share capital: 200 000 × £0.50 = £100 000
• Share premium: 200 000 × £0.20 = £40 000

Bonus Issue (Capitalisation Issue / Scrip Issue)

Existing shares converted from reserves — no cash changes hands.

• No change in total equity (reserves fall, share capital rises by the same amount)
• Funded from share premium or revaluation reserve (distributable reserves cannot be used for this)
• Shares issued at nominal value only

Example: 3 for 4 bonus issue. Existing shares: 800 000.

• New shares: 800 000 ÷ 4 × 3 = 600 000
• Share capital: +600 000 × £0.50 = +£300 000
• Share premium (or revaluation reserve): −£300 000
• Total equity: unchanged

Layout

Transactions are listed chronologically in rows. For each row, identify which column(s) are affected and by how much.

                        Share    Share    Revaluation  Retained
                       Capital  Premium    Reserve     Earnings   Total
                          £        £           £           £         £
Balance b/d             xxx      xxx          xxx         xxx       xxx
Share issue             xxx      xxx           —           —        xxx
Rights issue            xxx      xxx           —           —        xxx
Bonus issue             xxx     (xxx)          —           —         —
Asset revaluation        —        —           xxx          —        xxx
Profit for year          —        —            —          xxx       xxx
Dividends paid           —        —            —         (xxx)     (xxx)
Balance c/d             xxx      xxx          xxx         xxx       xxx

Exam tip: Bonus issues do not appear in the cash flow statement — no cash is transacted.