Shareholders' Equity: Analysis of Equity Statements for Businesses

This report provides a detailed analysis of Shareholders' Equity, a crucial component of a company's financial structure, defined as the difference between total assets and total liabilities. It explores how equity is presented and calculated in different business forms: sole proprietorships, partnerships, ...Read More

Running Head: SHAREHOLDERS EQUITY 0
Shareholders’ equity

SHAREHOLDERS EQUITY
Shareholder’s Equity can be defined as basically the difference between the total assets and the
total liabilities of the company. It is also the share capital of the company which has been kept by
the company after deducting the retained earnings minus treasury shares. There are different
names for the term shareholder’s equity which are Share capital, Equity or net Worth (Geng,
Bose and Chen, 2015).
The Equity section of the company as presented in the balance sheet includes the investments
clubbed by the company in total. There are different forms in which the equity is received. The
category of the other assets also includes the investment of the personal items such as
equipment’s of office, furniture, mahcinery and land. It is obvious that if the investment is done
by the owners by default it is appraised and reflected in the books of the company at their current
market value. Also the critical point that needs to be kept in mind is that if the investment is
made in the form of the personal assets the property of the business it is mandatory to showcase
the personal assets under the section of the company’s assets category in the balance sheet
(Penman, 2016).
Furthermore the presentation of the equity is dependent on the Legal form of the business
whether the business is sole proprietor, partnership or a corporation. There is a difference
between the equity of the corporation and the equity section of that of the partnership or the sole
proprietorship (Grant, 2016).
Equity section of the Sole Proprietorship
A sole proprietorship business is the single entity. Under the sole proprietorship the equity
section is not of the complex nature and sorted. It consists of the single account termed as the

SHAREHOLDERS EQUITY
CAPITAL.
Capital is known as the investment directly made by the owner for operating the company. These
types of investments can only be found during the initial stages ass and when the company is
forming, however still the cash and the assets can be infused in the company (Thomas, Van
Greuning, Henry and Michael, 2016).
For example the Michael Phelps is the sole proprietor of the Swimming Equipment Company
and the owner’s capital is $100000. The same will be reflected in the balance sheet in the
following manner.
Michael Phelps Capital
Account
Equity Jan-17 Dec-17
100000 139000
Working Note
Beginning capital account balance as of December 31,
2017
$100,000
Add: Additional investments made during 2017 by
Donald
$5,000.00
Add: Net income After Tax as of December 31, 2017 $40,000
Less: Total withdrawal as of December 31, 2017 ($6,000)
Equals: New Capital Account as of December 31, 2017 $139,000

SHAREHOLDERS EQUITY
Equity section for the partnership
A partnership business can be termed as the business under which the more than one person is
involved in the business. The number of the members shall be 2 in case of the minimum and in
case of the maximum the number of the members can stretch to 50. Under the partnership the
capital account is used to supervise the capital account of the owner. Each partner has its own
capital account (Radu, and Mihai, 2018).
For example Michael Phelps want to convert the sole proprietorship into the partnership than
accounts of both the members will be reflected in the balance sheet as on the date
Particulars Equity
Capital Account Dec-17
Michael Phelps 100000
Donald Walls 200000
Particulars Michael Phelps Donald Walls
Beginning capital account balance as of December 31, 2017 $100,000 $100,000
Add: Additional investments made during 2017 by Donald $5,000.00 $4,500.00
Add: Net income After Tax as of December 31, 2017 $40,000 $56,000
Less: Total withdrawal as of December 31, 2017 ($6,000) ($10,000)
Equals: New Capital Account as of December 31, 2017 $139,000 $150,500

SHAREHOLDERS EQUITY
The equity section of the Corporation
This case is very different form the case as illustrated above in the category of the equity under
the sole proprietorship and the equity under the partnership. In these cases the capital account
term is used by the owners to reflect the accounts, however in case of the corporation the account
is illustrated with the term “Shares” made by the owners. Also in addition, a corporation is
mandatory required to disclose the difference between the investors and the earnings over the
years as the statutory requirement of law. The shares account show the investment account made
by the investors or the shareholders of the company (PintArelli, WishneW and Kizer, 2017). On
the other hand the account of the retained earnings is required to keep a track of the earnings of
the company which also includes the dividends paid to the investor’s f the company (Cao,
Myers, Myers and Omer, 2015).
A graphical representation of the same can be seen below in the form of the example
SHAREHOLDER'S EQUITY:
Common Shares $100000
Retained Earnings $48000
Total Shareholders’ Equity $148000

SHAREHOLDERS EQUITY
Retained earnings are further calculated in the following manner.
Beginning retained earnings as on 1st January 2017 $30000
Add: Net Income or loss $22000
Less: Dividends declared ($4,000)
Equals: New Retained earnings as of December 31,
2017
$48000
From the above analysis it can be states that the statement of Equity is the crucial statement from
the point of view of the investors and the shareholders of the company. Furthermore, it can be
observed that the equity statement of the individual, partnership and the company is different in
certain prospective and therefore the treatment is done accordingly (Ichsani and Suhardi, 2015).
The presentation of the statements is different due to the change in the designation and moreover
the addition or reduction of the people also affects the statement of Equity. In case of the
companies the particular format is designed and the company is required to follow as it is
required by the statue. Henceforth it can be said that the shareholders equity is the statement that
is to be designed carefully.

SHAREHOLDERS EQUITY
References
Geng, R., Bose, I. and Chen, X., 2015. Prediction of financial distress: An empirical study of
listed Chinese companies using data mining. European Journal of Operational Research, 241(1),
pp.236-247.
Penman, S.H., 2016. The design of financial statements. United States: John Wiley & Sons
Thomas, R.R., Van Greuning, H., Henry, E. and Michael, A.B., 2016. International financial
statement analysis.
Radu, R.I. and Mihai, I.O., 2018. Financial Performance and Shareholders' Equity Dynamics-
Case of Industry and Constructions Listed Companies. Annals of the University Dunarea de Jos
of Galati: Fascicle: I, Economics & Applied Informatics, 24(1).
PintArelli, J.A., WishneW, J.A. and Kizer, M., 2017. Equitable or Equity Committees: Lessons
from Recent Cases. Energy, 21, p.6.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Cao, Y., Myers, J.N., Myers, L.A. and Omer, T.C., 2015. Company reputation and the cost of
equity capital. Review of Accounting Studies, 20(1), pp.42-81.
Ichsani, S. and Suhardi, A.R., 2015. The effect of return on equity (ROE) and return on
investment (ROI) on trading volume. Procedia-Social and Behavioral Sciences, 211, pp.896-
902.