3. The Statement of changes in Equity (IAS 1)

Question 1

What is the statement of changes in equity?

Answer 1

IAS 1 requires companies to prepare a statement of changes in equity as one of the primary financial statements.

The statement of changes in equity explains the movement in the equity section of the statement of financial position from the previous reporting date to the current reporting date.

Question 2

What should be sow in the statement of changes in equity? (3)

Answer 2

The following should be show in the statement of changes in equity:
1. Total comprehensive income for the period. For the purposes of ‘Accounting’, this is profit or loss for the period.
2. The amounts of transactions with owners, showing separately contributions by owners (e.g., issues of share capital and any related premium) and distributions to owners (in the form of dividends).
3. For each component of equity, a reconciliation between the carrying amount at the beginning and end of the period, showing separately each change.

Question 3

What are the key components of equity that should be shown in the statement of changes in equity? (4)

Answer 3

1. Share Capital
2. Share Premium
3. Retained Earnings
4. Other Reserves

Question 4

What causes movements in share capital and movements in retained earnings?

Answer 4

Movements in share capital result from cash share issues and bonus issues.

Movements in retained earnings result from profits earned in the year and dividends paid out to the equity owners.

Movements in retained earnings may also result from bonus issues of shares.

Question 5

How does the approach to preparing the statement of changes in equity differ from the approach to the other statements?

Answer 5

The approach to preparing the statement of changes in equity is different to that for the other primary financial statements we have met so far.

The statement of changes in equity uses information already contained in the statement of profit or loss and the statement of financial position to explain how equity has changed in the period.

Information relating to transactions and balances already recorded are used to prepare the statement of changes in equity.