ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Fundamentals of Accountancy, Business and Management 2
Module WEEK 4
Statement of Changes in Equity
Objectives:
1. Understand the purpose of the Statement of Changes in Equity
2. Appreciate that the presentation of the Changes in equity is dependent on the form of
business organization.
3. Identify the elements of the Statement of Changes in Equity
4. Determine the nature of the different equity accounts used be corporations; and
5. Prepare a Statement of Changes in Equity.
What is Statement of Changes in Equity?
All changes, whether increases or decreases to the owner’s interest on the company
during the period are reported here. This statement is prepared
prior to preparation of the Statement of Financial Position to be able to obtain the ending balance
of the equity to be used in the SFP.
Forms of Business Organization
Business organization determine the presentation of the SoCE and equity portion of the
SFP.
There are three basic forms of business organization namely (1) Sole proprietorship
(2) Partnership (3) Corporation. They differ in terms of number of owners , legal personality of
the business, and ease of transferability of ownership.
SINGLE/SOLE PROPRIETORSHIP –An entity whose assets, liabilities, income and
expenses are centered or owned by only one person.
PARTNERSHIP – An entity whose assets, liabilities, income and expenses are centered or
owned by two or more persons.
CORPORATION – An entity whose assets, liabilities, income and expenses are centered or
owned by itself being a legally separate entity from its owners. Owners are called shareholders or
stockholders of the company.
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
LEARNING IS FUN COMPANY
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016
Owner*, Capital, January 1, 2016 P100,000
Add:
Net income for the year 2016 P50,000
Additional investment 25,000 75,000
Sub-total P175,000
Less: Withdrawals for the year 30,000
Owner*, Capital, December 31, 2016 P145,000
Differentiate the initial investment from the additional investments and define withdrawals Initial
Investment – The very first investment of the owner to the company.
Additional Investment – Increases to owner’s equity by adding investments by the owner.
Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner.
*Distribution of Income – When a company is organized as a corporation, owners (called
shareholders) do not decrease equity by way of withdrawal. Instead, the corporation distributes
the income to the shareholders based on the shares that they have (percentage of ownership of
the company)
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
LEARNING IS FUN COMPANY
STATEMENT OF CHANGES IN EQUITY Heading
FOR THE YEAR ENDED DECEMBER 31, 2016
Owner*, Capital, January 1, 2016 P100,000
Add:
Net income for the year 2016 Increase to Equity P50,000
Additional investment 25,000 75,000
Sub-total P175,000
Decrease to Equity
Less: Withdrawals for the year 30,000
Owner*, Capital, December 31, 2016 P145,000
Amounts in the SCE are changes during the period. This means that what happened in the
previous years are not included in the Statement.
Point out different parts of the Statement of Changes in Equity
a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)
b. Increases to Equity
i. Net income for the year
ii. Additional investment
c. Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Statement of Changes in Equity of a Partnership and a Corporation
LEARNING IS FUN COMPANY
STATEMENT OF CHANGES IN EQUITY Heading
FOR THE YEAR ENDED DECEMBER 31, 2016
Partner A Partner B Total
Capital, January 1, 2016 P100,000 P150,000 P250,000
Add: Increase to
Net Income 2016 25,000 25,000 50,000 Equity
Additional Investment 50,000 20,000 70,000
Sub-Total Decrease to P175,000 P195,000 P370,000
Less: Withdrawals Equity 100,000 100,000 200,000
Capital, December 31, 2016 P75,000 95,000 170,000
The Statement of Changes in Partners’ Equity is used by a partnerships instead of the
Statement of Changes in Owner’s Equity. The differences between the two are as follows:
a. Title – instead of owner’s, partners’ is used to denote that this is a partnership
b. There are two or more owners in a partnership thus, the changes in the capital account of
each partner is presented
c. The net income is divided between partners (not always equal. Based on the agreement.
Example: 60:40, 40:60, etc.)
LEARNING IS FUN COMPANY
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016
Capital, January 1, 2016 P1,000,000
Share Issuance Increase to Equity 500,000
Net Income Decrease to Equity 150,000
Distribution of Income (100,000)
Capital, December 31, 2016 P1,550,000
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
The Statement of Changes in Shareholders’ Equity is used by a corporation instead of the
Statement of Changes in Owner’s Equity. The differences between the two are as follows
a. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation
b. There are an unlimited number of shareholders but unlike the partnership, the names of
the shareholders are not indicated here. Instead, the corporation keeps an official list with
the corporate secretary
c. The capital account is called share capital (just like owner’s being shareholders)
d. Instead of additional investment, share issuances (happens when shares are sold to
shareholders) increases the share capital of a corporation
e. Instead of withdrawals, distribution of net income to shareholders decreases the Capital
of the corporation
f. Sample questions:
Easy:
1. Which form of business organization puts the least risk on its owners?
Answer: Corporation
2. Which form of business organization is owned by only one person?
Answer: Single/Sole Proprietorship
Average:
1. Increases in owner’s equity without additional investment
Answer: Net income
2. Decreases to owner’s equity apart from net effect of revenues and expenses.
Answer: Withdrawal or Distribution of Income
Difficult
1. Beginning owner’s equity amounted to P 300,000. Net loss for the year totaled P 45,000.
No additional investments and withdrawals for the period. Compute for total increase in
equity for the year.
Answer: Increase is zero but decrease is P 45,000.
2. Ending owner’s equity amounted to P70,000. Additional investments during the year
amounted to P30,000. Withdrawals totaled P50,000. Compute for the company’s net
income for the year assuming beginning equity is P10,000.
Answer: P80,000
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Long Quiz
True or False: read each sentence carefully and determine whether the statement is True or
False. Write your answer in the space provided before the number.
__________1. The SoCE is dated “as of the year ended.
__________2. There are two equity accounts reported on the SoCE as sole proprietorship
namely, owner, capital and Owner, Drawings.
__________3. The number of capital accounts presented in SoCE of partnerships is equal to
gthe number of partners.;
__________4. The drawing account is used for sole proprietorship, partnership and corporation.
__________5. The partnership net income is allocated to each partner’s capital using the profit
and loss sharing agreement stated in the contract of partnership.
__________6. Paid-in capital is the amount of contributions given to the corporation in exchange
for the shares of stocks.
__________7. All equity accounts have normal credit balances.
__________8. The capital stock account reports the proceeds from the issuance of the stocks.
__________9. The SoCE of a corporation presents the reconciliation from the beginning to the
ending balances of all the equity accounts.
__________10. Dividends distributed by corporation are credited against retained earnings.
Problem 1: Sole Proprietorship
On February 15, 20X1, Evelyn Ferrer opened Cookie Fantasy Bakeshop. She invested
P75,000 to purchase an oven and bakery supplies. The business generated a net income of
P37,545 in 20X1. Moreover, evelyn used P15,000 from the account of Cookie Fantasy to pay the
electricity and phone bills of her house.
Evelyn invested an additional P13,400 and P17,650 on March 16, 20X2 and August 19,
20X2, respectively. Net income for 20X2 was reported at P48,950. Evelyn’s drawings account
has a balance of P20,000 on December 31, 20X2.
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Required: prepare Cookie Fantasy Bakeshop Statement of Changes in Equity for the year ended
December 31, 20X1 and December 31, 20X2. See format below:
Balance, January 1, 20X1
Balance December 31, 20X1
Balance, December 31, 20X2
Problem 2: compute for the Net Income.
The Playdate Kiddie Gym is owned and manage by by Cris Roxas. The balance of the
Chris Roxas, Capital is P765,430 and P857,340 on December 31, 20X1 and December 31, 20X2,
respectively. Net income for 20X2 is P115,465. Cris did not make additional contribution to the
business in 20X2. Determine the balance of the Cris Roxas, drawings on December 31, 20X2.
Problem 3. Partnership.
The following are taken from the accounting records of MNO Partnership.
December 31, 20X3
Mario, Capital P58,960
Nancy Capital 63,200
Olga, Capital 64,890
The partnership is generated net income of 75,400 in 20X4. According to the partnership
contract, the profit and loss sharing ratios as follows: Mario (25%), nancy (37.5%), and Olga
(37.5%).
The following were transactions with the partners during the year:
Mario made additional contribution of P7,640
Nancy withdrew P5,000 from the business
Olga contributed P12,000 but withdrew P5,430.
ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro
Required: prepare the partnership’s Statement of Changes in Equity.
Problem 4: Corporation
The retained earnings of PQR Inc. Shows a January 1, 20X2 balance of P199,760. The
Board of Directors of PQR Inc. Distributed cash dividends of P11,000 to the company’s
stockholders. As of December 31, 20X2, the retained earnings reported of P280,990. Determine
PQR’s net income for 20X2.
