CAPITULO 15 INTERMEDIA - Chapter 15 Equity CHAPTER 15 151...

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CHAPTER 15 EQUITY This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each supplement chapter, which can be used to assess and reinforce student understanding of IFRS. EQUITY Equity is the residual interest in the assets of the company after deducting all liabili- ties . [1] Equity is often referred to as shareholders’ equity, stockholders’ equity, or cor- porate capital. Equity is often subclassified on the statement of financial position into the following categories (as discussed in Chapter 5). 1. Share capital. 2. Share premium. 3. Retained earnings. 4. Accumulated other comprehensive income. 5. Treasury shares. 6. Non-controlling interest (minority interest). Such classifications help financial statement users to better understand the legal or other restrictions related to the ability of the company to pay dividends or otherwise use its equity for certain defined purposes. Companies often make a distinction between contributed capital (paid-in capital) and earned capital. Contributed capital (paid-in capital) is the total amount paid in on capital shares—the amount provided by shareholders to the corporation for use in the business. Contributed capital includes items such as the par value of all outstand- ing shares and premiums less discounts on issuance. Earned capital is the capital that develops from profitable operations. It consists of all undistributed income that remains invested in the company. Retained earnings represents the earned capital of the company. As indicated above, equity is a residual interest and therefore its value is derived from the amount of the corporations’ assets and liabilities. Only in unusual cases will a company’s equity equal the total fair value of its shares. For example, BMW (DEU) recently had total equity of 20,265 million and a market capitalization of 21,160 million. BMW’s equity represents the net contributions from shareholders (from both majority and minority shareholders) plus retained earnings and accumulated other comprehen- sive income. As a residual interest, its equity has no existence apart from the assets and liabilities of BMW—equity equals net assets. Equity is not a claim to specific assets but a claim against a portion of the total assets. Its amount is not specified or fixed; it depends on BMW’s profitability. Equity grows if it is profitable. It shrinks, or may dis- appear entirely, if BMW loses money. This is particularly advantageous whenever issuing shares for property items such
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This note was uploaded on 02/02/2012 for the course ACCO 3350 taught by Professor Alvarez during the Spring '11 term at American International.

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CAPITULO 15 INTERMEDIA - Chapter 15 Equity CHAPTER 15 151...

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