Shareholders Equity

Question 1

What makes up shareholders Equity?

Answer 1

Share Capital and retained earnings

Question 2

What does the “paid-in-capital” account represent?

Answer 2

Paid in capital is the excess gain on the share when deducting the par value.
Ie. A share sold above par for $10, par value = $0.01
The $9.99 must be recorded in the paid-in-capital in excess of par account (a normal equity account)

Question 3

What does the “treasury share” account represent?

Answer 3

This is a contra equity account, and is the cost of buying back treasury shares at cost. Buying treasury shares reduces both assets (cash) and shareholders’ equity.