Stockholders' equity is the right of owners over net assets that arises from contributions from owners, from transactions and other events or circumstances that affect an entity, which is exercised through reimbursement or distribution.
financial-reporting-standard-c-11-stockholders' equityAccording to its origin, stockholders' equity is made up of contributed capital and earned capital or deficit, where appropriate.
Contributed capital:
- Share capital Contributions for future capital increases Premium on sale of shares Donations
Earned capital (deficit):
- Retained earnings, including those applied to capital reserves Accumulated losses Excess or insufficiency in updating stockholders' equity.
Valuation rules
The capital stock represents the sum of the nominal value of the subscribed and paid shares and the corresponding update from the moment they are displayed.
The share subscription premium represents the excess difference between the payment of the subscribed shares and their nominal value, or their notional value (amount of the paid-in capital stock between the number of shares in circulation).
Valuation rules
When capital is reduced by amortizing shares for amounts greater than their nominal or theoretical value, expressed in pesos of purchasing power on the date of amortization, the excess must be considered as a decrease in earned capital. If this is not enough, the difference will decrease the contributed capital.
Capital accounts should not be used to reflect income transactions. Adjustments to results from previous years must be treated in accordance with the provisions of the Financial Reporting Standard NIF B-1 "Accounting changes and error corrections".
In the event that the shareholders reimburse the entity's losses in cash or property, the corresponding amounts should be considered as a reduction to accumulated losses.
The common dividends decreed pending payment, as well as the preferred dividends once the corresponding profits have been approved by the shareholders, do not form part of the stockholders' equity, but rather of the liability in charge of the entity.
Accounting record and presentation of decreed dividends
1. In the meeting minutes of "X" date, dividends for $ 500,000 are decreed.
Presentation rules
When the shareholders do not fully disclose the amount of the subscribed shares, the difference between the amount delivered and the amount pending payment shall be considered as subscribed capital not paid, subtracting the line of capital stock.
It is not acceptable to present the amount pending payment as an account receivable from the entity's shareholders, even when it is protected by credit instruments.
Bulletin C-3 “Accounts Receivable”, Paragraph 23.
The balances in charge of owners, shareholders or partners of an entity, representing subscribed capital not exhibited, should not be included in the accounts receivable item.
Reclassification of unpaid subscribed capital (for presentation purposes in the statement of financial position).
The Company "La Cachora Voladora, SA de CV" has a subscribed and paid capital stock of $ 500,000.
1. The shareholders subscribe capital for $ 300,000 which is pending payment.
Presentation rules
The financial statements must disclose all the characteristics of stockholders' equity and its restrictions, such as the following:
- Description of the securities representing the capital stock, such as ordinary shares, preferred shares, shares. Classes and series of shares and shares into which the share capital is divided, with their characteristics and restrictions. Minimum share capital and maximum authorized amount, in the case of variable capital companies and their updated amounts Number of shares issued and subscribed, their nominal value or the mention that they do not express nominal value In the case of preferred and / or special shares, their rights and restrictions, such as conversion or redemption characteristics, guaranteed minimum dividend, as well as the amount of accumulated dividends not decreed. Restrictions and other situations that affect stockholders 'equity due to legal provisions, shareholders' agreements,loan or other contracts. Type of taxes to which distributions or refunds are subject.
Presentation rules
In the event that there are advances from the partners or shareholders for future increases to the capital stock of the entity, these will be presented in a separate line within the contributed capital, as long as there is a resolution in the assembly of partners or shareholders that they will be applied for increases in capital stock in the future, otherwise these amounts must be part of the liabilities borne by the entity.
Reclassification of contributions for future capital increases, in the event that there is no minutes of the shareholders' meeting that give such quality.
1. The contributions to be capitalized do not have a meeting certificate that gives them such quality.
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