Stockholders' equity designates the difference between the assets and liabilities of a company. It reflects the owners 'investment in an entity and generally consists of their contributions plus or minus their retained earnings or accumulated losses, plus other types of surplus such as excess or insufficiency in the accumulation of stockholders' equity and donations.
The Accounting Principles Commission of the Mexican Institute of Public Accountants (IMCP), in its bulletin C-11 defines it as:
INTEGRATION OF STOCKHOLDERS 'EQUITY:
It is made up of:
- Share Capital. Contributions. Donations. Retained Earnings either for being in the Reserve or pending application. Accumulated Losses. Updating of Stockholders' Equity.
CONFORMATION OF STOCKHOLDERS 'EQUITY
It consists of contributed capital and earned capital.
Contributed Capital. Refers to the owners' contributions and donations received by the entity. Within the Contributed Capital we have the Capital Stock.
- Share capital. It is the set of contributions from partners or shareholders, considered in the articles of incorporation or in its reforms. It is made up of:
- Authorized Capital, not issued: It is the difference between the capital of the company authorized in the deeds and the amount that has been put to subscription. This difference may or may not be subscribed, from the point of view of the Financial Statements it is not an integral part of the Stockholders' Equity but it is an element of Information. Unsubscribed Issued Capital: Represented by that part of the capital issued in the minutes of the shareholders' meeting and pending subscription, this part of the share capital is also not an element of stock capital from a financial point of view, but if from an informative point of view. Subscribed Capital: Represents the part of the issued capital that the partners or shareholders undertake to display, from the point of view of the Financial Statements, IF it is an integral part of the Stockholders' Equity.Subscribed and unexposed Capital: Represents the part of the Subscribed Capital by the partners or shareholders whose exhibition is pending receipt, must be presented in the Statement of Financial Position, reducing the Subscribed capital. Displayed Capital: Represents the amount that the partners or shareholders have exhibited or have actually contributed.
Capital Earned. Refers to the result of the entity's activities and other events or circumstances that affect it, such as the adjustment for recovery of changes in prices that have to be recognized.
PARTNER, SHAREHOLDER CONTRIBUTIONS OR DONATIONS
Under this concept, the contributions of the partners or shareholders are considered different from those made to integrate the Share capital.
The difference is only of a legal nature, that is, the first ones were formalized through the articles of incorporation of the company or its reforms and the others not necessarily.
The first were notarized by a Notary Public, in this concept are the Contributions for Future Capital Increases, the premiums on the sale of shares, the additional contributions in the Limited Liability Company (Article 70 of the General Law of Mercantile Companies)
In order for the contributions for future Capital Increases to be considered as Capital, there must be a resolution of the Assembly of Partners or shareholders to be capitalized, otherwise they must be part of the Liabilities.
Donations represent non-reimbursable shares other than partners or shareholders must be part of the Stockholders' Equity.
In the Financial Statements due to the need for a clear and complete disclosure, it is essential that said donations be presented in a separate line making an analysis or details of the circumstances dictate.
There are mediate, immediate and mixed contributions.
RETAINED EARNINGS
The profits obtained by the company that have not been capitalized or distributed to the shareholders are kept in the company and therefore form part of the stockholders' equity, are classified as:
- Retained earnings applied to reserves specifically. Constituted by provision of the law or of the company charter or by shareholder assembly agreements. Retained earnings pending application. It is the part of retained earnings that have not been applied for a specific purpose and therefore are free, are made up of accumulated earnings pending from previous years and profit or loss for the period.
They must be presented on a separate line.
ACCUMULATED LOSSES
When the losses have absorbed the profits pending application and those applied to reserves, the accumulated loss occurs.
STOCK CAPITAL UPDATE
The update of stockholders 'equity represents the adjustment for repercussions of changes in prices that have to be recognized in the financial information in high inflation economies. It is integrated with the update of the items that make up stockholders' equity and the excess or insufficiency in that update.
To update the stockholders 'equity, it is carried out through the adjustment method for changes in the price level, which updates the historical cost of stockholders' equity by prices of the current purchasing power of money by applying a factor derived from the INPC.
This means that stockholders' equity continues to be valued at historical cost but updated with the loss of the purchasing power of the currency measured through the general price level.
STOCK MARKET REGISTRY
- The recording of Stock Capital is generally done through G / L accounts for each of the concepts with sub accounts for each of the elements or items that you wish to control. Stock Capital is made up of the following accounts: Share Capital. Subscribed capital. Contributions for future Capital increases. Premium of sale of shares. Donations. Legal Reserve. Reinvestment reserve of profits.
SOCIAL CAPITAL
| KIND | AMOUNT | STOCKHOLDERS 'EQUITY | INFORMATION |
| AUTHORIZED (agreed) | 1000 | -------- | X |
| NOT ISSUED (cannot be subscribed) | 200 | -------- | X |
| ISSUED (can be subscribed) | 800 | -------- | X |
| NOT SUBSCRIBED (cannot be displayed) | 100 | -------- | X |
| SUBSCRIBED (issued can be exhibited, contributed or paid) | 700 | X | --------- |
| NOT DISPLAYED (subscribed that has not been contributed) | 250 | X | --------- |
| DISPLAYED (contributed or paid) | 450 | X | --------- |
The accounting entry is as follows:
| Concept | Partial | Should | To have |
| Shareholders Subscribed Capital | xxxxxxxxxxxxxxxx | ||
| Shareholder A | xxxxxxxxxxxxxxx | ||
| Shareholder B | xxxxxxxxxxxxxxx | ||
| Social capital | xxxxxxxxxxxxxxxx | ||
| Capital class and shares | xxxxxxxxxxxxxxx | ||
| = Subscribed Capital for the shares in accordance with the Meeting date: xxxx |
The exhibition of the contribution:
| Concept | Partial | Should | To have |
| Box | xxxxxxxxxxxxxxxx | ||
| In charge of guarding the shares | xxxxxxxxxxxxxxx | ||
| Shareholders Subscribed Capital | xxxxxxxxxxxxxxxx | ||
| Shareholder A | Xxxxxxxxxxxxxxx | ||
| Shareholder B | Xxxxxxxxxxxxxxx | ||
| = Exhibition or contribution of the shareholders |
The contributions or exhibitions of the partners are made in money or kind, while they do not settle their subscription they are debtors of the entity.
Shares paid in whole or in part by contributions in kind must be deposited with the Company for at least two years (article 141 LGSM)
Contributions can be:
- Immediate: the contribution is settled in the subscription. Media: the subscription is made and then the contribution is settled. Mixed: the capital is subscribed and part of it is exhibited and the rest is subsequently exhibited.
These movements are controlled and recorded in the SHAREHOLDERS CAPITAL SUBSCRIBED Account.
| SHAREHOLDERS SUBSCRIBED CAPITAL | |
| LOADED | SUBSCRIBE |
| SUBSCRIPTIONS OF THE PARTNERS OR SHAREHOLDERS START OF THE ECONOMIC ENTITY | EXHIBITION OR PAYMENT OF THE SUBSCRIPTIONS OF THE PARTNERS OR SHAREHOLDERS. |
| FOR YOUR ADDITIONAL SUBSCRIPTIONS TO INCREASE CAPITAL | ACCOUNT TRANSFER CONTRIBUTIONS FOR FUTURE CAPITAL INCREASE |
BALANCE: DEBT
IT REPRESENTS:
Amounts pending to be exhibited by the shareholders as payment for the subscription of their contributions to the economic entity.
In the Statement of Financial Position:
Presents itself:
- STOCKHOLDERS 'EQUITY SHARE CAPITAL, UNEXHIBITED CAPITAL (LESS) EXHIBITED CAPITAL.
CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES
It is used to record the contributions of partners or shareholders for future capital increases, it has the following movements:
| CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES | |
| LOADED | SUBSCRIBE |
| Transfer to the Shareholders account Subscribed capital. | Contributions from partners or shareholders for future capital increases. |
BALANCE: CREDITOR.
IT REPRESENTS:
Contributions from partners or shareholders pending capitalization.
In the Statement of Financial Position it is presented in the Contributed Capital group after the Share Capital, when there is a resolution in the Assembly of the Partners or Shareholders, if there is no agreement, its balance must be presented as a liability of the entity.
LEGAL RESERVATION
It is created in accordance with the provisions of the General Law of Mercantile Societies (LGSM), in its articles 6, 20, 21 that indicate that the articles of incorporation must contain:
The amount of the legal reserve.
- Of the net profits of all companies, the Reserve fund must be formed annually of 5%, until the Fifth Part of the Capital Stock is imported. The reserve fund must be restituted in the same way when it decreases for any reason. of the profits to form or restitute the reserve fund, the administrators will be unlimited and jointly and severally obliged to deliver to the company an amount equal to that which should have been separated.
Legal Reserve Account.
| LEGAL RESERVATION | |
| LOADED | SUBSCRIBE |
| Capitalization of the Reserve. | Constitution of the Reserve charged to the profits for the year. |
| Loss absorption | |
| Distribution to shareholders or partners. |
BALANCE: CREDITOR.
IT REPRESENTS:
Separation of the profits to constitute the legal reserve fund that the law orders in order for the company to face contingencies that arise.
In the Statement of Financial Position it is presented in Earned Capital.
In addition to the Legal Reserve fund, Cooperative Societies must establish a social security fund in accordance with the General Law of Cooperative Societies.
That goes from 10 to 20% of the returns obtained by the company in each year. And the Reserve fund must be constituted by at least 2 thousand of the gross income of the company.
ACUMULATED UTILITIES
This is the name given to the profits pending application or the surplus earned.
The following movements:
| ACUMULATED UTILITIES | |
| LOADED | SUBSCRIBE |
| By decree of distribution of partners or shareholders. | For the net profit for the year after the distribution of the shareholders and application to legal reserves or share capital. |
| Application to reservations | |
| Capitalization | |
| Loss application. |
BALANCE: CREDITOR.
IT REPRESENTS:
The balance of the net profits received after deducting the distributions to the partners or shareholders, the application to reserves or the share capital or, where appropriate, the absorption of losses.
It is presented in the Statement of Financial Position in the Earned Capital Group, after Reserves.
Next, Professor Marta Vaca Lamata, from the Miguel Hernández University of Elche, explains in detail what net equity or stockholders' equity is, what its components are and how they are accounted for.
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