Equity Capital: Intriguing Weirdnesses
July 15, 2010, 12:00 am
Copyright © 2010 Integrated Profitability TM
Near the beginning of this series on equity- capital, Equity Structures: Market Examples & Other Names for Equity went over the basic components of a company’s equity structure. In the beginning of a company’s life, the equity part of the balance sheet is straightforward:
● Preferred Stock (if issued)
● Common Stock
● Capital in Excess of par value
As long as the company has straightforward business experiences, equity capital remains a clear, straightforward set of accounts.
Assuming the company is making a net-profit and at least some of that is poured back into the business, then a new equity account is added and begins to grow with each year there is a final, positive net-profit:
● Retained earnings
Unfortunately, not everything goes according to plan in the business world. As the earlier article showed, depending on the financial situation of a company, other less clear equity accounts are added. Conceptually, making a profit is simple: sell for more than it costs. This doesn’t always happen in the real world and when it doesn’t, accountants still have to account for it. Here are some examples:
● Accumulated other comprehensive income/(loss)
● Employee benefit trust
● Treasury stock (aka Common Stock in treasury)
● Guaranteed ESOP Obligations
● Accumulated undistributed (overdistributed) net investment income (loss)
● Accumulated undistributed (overdistributed) net realized gain (loss)
● Net unrealized appreciation (depreciation) on:
- Investments
- Foreign currency translations
- Foreign capital gains tax
- Written options
What interesting, possibly mysterious, equity accounts have you come across?
Bill
William A. Stong
Email: william.a.stong@gmail.com
SBF&P # 71
Telephone: 925-202-6244
Copyright © 2010 Integrated Profitability TM
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