Lecture 14: Statement of Changes in Equity
The last statement of the big three is the Statement of Changes in Equity. This statement has quite a different layout but take note, I still have to name the actual statement, and it's for the period ending, so 31 December 20x4.
This is going to be quite a different layout, I’m not going to have two columns down the one side of the page; I’m going to have multiple columns. So, here I’m going to have all different types of equity. It will be share capital. I will have reserves (reval or revaluation surplus). This one we briefly mentioned; you’re not going to really be tested on that; there’s a whole bunch of them for future studies. Then there’s going to be retained earnings (my accumulated profits), and in a group scenario you’ll deal with something called Non-Controlling Interest, but not for this course. Then you will have the total equity. This is going to be done from one side of the page to the other, left to right.
I will start off with my opening balance of the prior year, so we're dealing with the 20x4 year (31 December is the end), and we must start with 1st of January (not 20x4 but the prior year 20x3). That will be my opening balance (remember to put it all in Rands). Remember that all of this together must equal the total.
Then, we must put in the movements for that year, so let's pretend that there were shares issued. Shares would obviously increase share capital. You will deal with that later on in the study units on companies, but that will not have affected any of the others, but you’ll have a total.
Then, there will be net profit for the year. So you’ll write down the net profit for the year after tax.
You'll remember that profit goes to profit or loss accounts and gets closed out and accumulated in retained earnings. There will be nothing under reval surplus and nothing under the shared capital but the total equity and retained earnings must be added too. Then we will have our closing balance for the prior year, 31st December 20x3, and then we will add up the previous totals and we have a new total.
That's last year's closing balance in the prior year. Those figures are in the prior year Statement of Financial Position under Equity.
Then we have to do the current year. Those changes will be made up of net profit after tax and that please, is going to go under retained earnings with a total (it will not affect the other two).
Then, there may have been a share buyback, so the company buys back some of its shares from shareholders, and that will make share capital smaller, but it won’t affect the others as a total effect by decreasing total equity.
The last one there might have been a pay-out to shareholders or owners, and we'll call that a dividend. It does not affect share capital or reval surplus; it will just make retained earnings smaller and make total equity smaller.
We will then have a closing balance, which will be at the 31st of December 20x4, which will be our closing balance. Add those columns up and write down your total by drawing two lines underneath. What I want you to remember is that all of these figures will all go to the Statement of Financial Position.
This is the third of the statements that IAS1 prescribed, so we have Statement on Financial Position, Statement of Profit or Loss and Other Comprehensive Income, as well as the Statement of Changes in Equity. The fourth statement, the Statement of Cash Flows, has its own standard and in accounting, we call this standard the International Accounting Standard 7 (IAS7), but we will deal with cash flows in another study unit. Learn these statements, write them out, and make sure you know them by heart so that you can write them down no matter what state of mind you're in, in the exam.