3.9 Statement of changes in equity

Question 1

What is equity?

Answer 1

The residual interest in the assets of the entity after deducting its liability.

Question 2

What are “Retained earnings”?

Answer 2

Earnings not paid out as dividends but retained by the company to be reinvested in its core business or to pay debt.

Question 3

Companies are required to prepare a statement of changes in equity. What two items must this contain?

Answer 3

1 Total comprehensive income for the period

2 Reconciliations between the carrying amounts at the beginning and end of the period.

Question 4

What factors contribute to movement in shareholders’ equity?

Answer 4

• capital injections
• dividends
• prior period adjustment (i.e. accounting for previous errors)
• profit or loss
• revaluation gains and losses
• other gains and losses
• transfer between reserves