The essence of equity capital and its structuring for accounting needs
Journal Title: Visnyk Ternopilskoho natsionalnoho ekonomichnoho universytetu - Year 2017, Vol 3, Issue
Abstract
The paper considers various interpretations of the essence of equity capital. The concept of equity capital is viewed from the perspective of property as a venture capital, i. e. business property, which does not guarantee profits and dividends, and for which there is no clear schedule of returning funds to investors and shareholders. The most common equity capital components in national and foreign practice are examined and compared. It is pointed out that the equity components mainly used in Ukraine are defined by the National Accounting Standards. Alternatively, the structure of equity capital components in foreign practice relies on the Conceptual Framework of Financial Statements, but it is further detailed by national standards of each country and depends on its policy and accounting characteristics. The structure of equity capital in foreign practice may be influenced by shareholders’ decisions on the establishment of funds (additional capital), allocation of profits, transactions with treasury shares. It is made clear that in most countries equity capital components include joint stock capital, surplus reserves, and retained profit. The article reviews the classification of equity capital, viewed as the key factor, and determines its influence on accounting principles and policies. It is concluded that in regulatory documents, there are no clear lines between types of equity capital. The paper also discusses various views of scholars on equity capital arrangement. It is found that in research works, equity capital is classified based on various characteristics, but the majority of researchers consider sources of equity capital to be the main criterion. In addition, there is no consensus among academics as to what types of equity capital can be singled out by the criterion described. Taking into consideration some proposals of scholars and foreign practice related to accounting of equity capital, the author develops a generalized structure of equity capital which is based on the sources of capital formation and includes: invested capital, particularly registered capital (statutory and mandatory share capital), corrective capital (unpaid and withdrawn capital), additional capital (capital received from investors for stock that exceeds the par value of the stock, i.e. additional equity capital); acquired capital (assets received for free, capital formed from revaluation of assets, other capital) and reinvested capital (retained profits (uncovered losses) and surplus reserves). The above equity structure can be used to prepare financial statements in order to increase its informational value. Proposals are given on how to improve methods for accounting of equity capital, in particular accounting of additional capital invested by founders in the account entitled “Non-regis- tered investments of owners”.
Authors and Affiliations
Iryna Nazarova
Keywords
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