After completing this module you will be able to:
• Identify the purpose and structure of statements of changes in owners’ equity and some of the ways managers, investors, and others use them.
• Connect changes in balance sheets to statements of changes in owners’ equity, and apply these concepts to real companies’ reports.
• Apply a hierarchical approach to assessing changes in owners’ equity using information on statements of changes in owners’ equity.
L E A R N I N G O B J E C T I V E S
What Do I See on Statements of
Changes in Owners’ Equity?
Key take-aways:
•
As suggested by its name, and illustrated in figure 1, the statement of changes in owners’ equity explains the changes in owners’ equity during reporting periods.•
The beginning and ending balances for line items reported in the owners’ equity section of the balance sheet are reported in the statement of changes in owners’ equity. Typically, balance-sheet line items or rows correspond to columns in the statement of changes in owners’ equity.•
In figure 2, the owners’ equity change map demonstrates the hierarchical nature of concepts reported in the statement of changes in owners’ equity. At the highest level of this hierarchy, the change in owners’ equity has two components: the net changes associated with transactions with owners and other events that changed owners’ equity.•
The net change due to transactions with owners is further divided into two components: contributions from owners, usually in exchange for stock, and distributions to owners, usually in the form of cash dividends or stock repurchases.•
Two balance sheet concepts were introduced in this module: Retained earn-ings is the net profits the company has accumulated since it started less the accumulated distributions of earnings to owners in the form of dividends or share repurchases. Thus, retained refers to earnings that have not been distributed to owners. Reserves, also called surplus or accumulated other comprehensive income, is other comprehensive income the company has accumulated since it started.Key terms:
•
Owners’ equity - Owners’ claims on entity’s assets. Total owners’ equity is the accounting or book value of the owners’ claims, which generally differs from fair values. Also called stockholders’ equity or shareholders’ equity.•
Retained earnings - Net profits and losses (earnings) the company has accumulated since it started less the accumulated distributions of earn-ings to owners in the form of dividends or share repurchases. Also called Retained losses.•
Reserves - Other comprehensive income the company has accumulated since it started. Also called surplus, accumulated other comprehensive income, and other comprehensive income.Figure 1 Connecting Balance Sheets to Statements of Changes in Owners’ Equity
This figure demonstrates how balance sheets’ rows and statements of changes in owners’ equity’s columns are connected.
December 31, 2013 and December 31, 2012
(In Millions)
Assets 2013 2012
Current
Cash and cash equivalents $31 $13 Accounts receivable, net 84 66 Inventories 158 109 Other current assets 229 178 Total current assets 502 366 Non-current
Property, plant, and equipment, net 194 175 Other non-current assets 233 199 Total non-current assets 427 374 Total assets $929 $740 Liabilities and Stockholders' Equity
Liabilities Current
Accounts payable 25 35 Other current liabilities 84 88 Total current liabilities 109 123 Non-current
Long-term borrowings 105 60 Other non-current liabilities 102 71 Total non-current liabilities 207 131 Total liabilities 316 254 Stockholders' equity
Share capital 253 214 Other stockholders' equity 360 272 Total stockholders' equity 613 486 Total liabilities and stockholders' equity $929 $740
BISCHOFF GLOBAL SPORTSWEAR STATEMENTS OF FINANCIAL POSITION
(In Millions)
$180 $179 $16 $375
Comprehensive income
Profit (loss) 76 76
Other comprehensive income 24 24
Total 76 24 100
Common stock issued 7 7
Dividends declared (23) (23)
Other 27 7 (7) 34
$214 $239 $33 $486
Comprehensive income
Profit (loss) 89 89
Other comprehensive income 24 24
Total 89 24 113
Common stock issued 10 10
Dividends declared (25) (25) Other 29 7 (7) 36 $253 $310 $50 $613 Total December 31, 2011 December 31, 2012 December 31, 2013
BISCHOFF GLOBAL SPORTSWEAR
STATEMENT OF CHANGES IN EQUITY
Share
Capital EarningsRetained Reserves December 31, 2013 and December 31, 2012
(In Millions) 2013 2012 Δ
Stockholders' equity
Share capital 253 214 39
Retained earnings 310 239 71
Reserves 50 33 17
Total stockholders' equity 613 486 127
Total liabilities and stockholders' equity $940 $746 $194
Connecting Bischoff’s Balance Sheet to its Statement of Change in Owners’ Equity Connecting Bischoff’s Balance Sheet to its Statement of Change in Owners’ Equity
214 239 33 486 $486 $214 $239 $33 December 31, 2012 253 310 50 613 $253 $310 $50 $613 December 31, 2013
Connecting Bischoff’s Balance Sheet to its Statement of Change in Owners’ Equity
Comprehensive income
Profit (loss) 89 89
Other comprehensivevv income 24 24
Total 89 24 113
Common stock issued 10 10
Dividends declared (25) (25) Other 29 7 (7) 36 39 71 17 127
Figure 2 Connecting Owners’ Equity Change (OEC) Map to Statement of Changes in Owners’ Equity
This figure illustrates the hierarchical nature of concepts reported in the statement of changes in owners’ equity.
(In Millions)
$180 $179 $16 $375
Comprehensive income
Profit (loss) 76 76
Other comprehensive income 24 24
Total 76 24 100
Common stock issued 7 7
Dividends declared (23) (23)
Other 27 7 (7) 34
$214 $239 $33 $486
Comprehensive income
Profit (loss) 89 89
Other comprehensive income 24 24
Total 89 24 113
Common stock issued 10 10
Dividends declared (25) (25) Other 29 7 (7) 36 $253 $310 $50 $613 Total December 31, 2011 December 31, 2012 December 31, 2013
BISCHOFF GLOBAL SPORTSWEAR
STATEMENT OF CHANGES IN EQUITY
Share Capital Retained Earnings Reserves $189 $62 $127 = -A Change in Assets L Change in Liabilities OE Change in Owners' Equity
Other events or circumstances during the period that changed
the value of net assets Transactions with owners during
the period that changed the value of the net assets
$14 $113 Net Profit (Loss) Other Comprehensive Income $89 $24 Contributions from owners $39
Fiscal 2013 balance sheet change
+
-
Distributions to owners $25 + Change in accounting policy and restatements $0 Comprehensive Income $113 + $39 10 29 $25 (25) $89 89 $113 113Connecting the Owners’ Equity Change Map to
the Statement of Changes in Owners’ Equity
Figure 3 Connecting Owners’ Equity Change (OEC) Map to Statements
This demonstrates how balance sheets, income statements, and statements of changes in owners’ equity are connected.
Connecting Owners’ Equity Change Map to
Balance Sheets, Income Statements, and Statements of Changes in Owners’ Equity
2012
fiscal year end fiscal year end2013 $929 = -A Assets L Liabilities OE Owners' Equity $316 $613 $740 = -A Assets L Liabilities OE Owners' Equity $254 $486
One-year performance period
$189 $62 $127 = -A Change in Assets L Change in Liabilities OE Change in Owners' Equity
Other events or circumstances during the period that changed the value of net assets Transactions with owners during
the period that changed the value of the net assets
$14 $113 Net Profit (Loss) Other Comprehensive Income $89 $24 Contributions from owners $39 Income Gains Revenues Expenses Losses
Fiscal 2013 balance sheet change
+ - Distributions to owners $25 + Change in accounting policy and restatements $0 Comprehensive Income $113 + Ordinary Expenses -+ -
-OWNERS' EQUITY CHANGE MAP
(In Millions)
$180 $179 $16 $375
Comprehensive income
Profit (loss) 76 76
Other comprehensive income 24 24
Total 76 24 100
Common stock issued 7 7
Dividends declared (23) (23)
Other 27 7 (7) 34
$214 $239 $33 $486
Comprehensive income
Profit (loss) 89 89
Other comprehensive income 24 24
Total 89 24 113
Common stock issued 10 10
Dividends declared (25) (25) Other 29 7 (7) 36 $253 $310 $50 $613 Total December 31, 2011 December 31, 2012 December 31, 2013
BISCHOFF GLOBAL SPORTSWEAR STATEMENT OF CHANGES IN EQUITY
Share Capital
Retained
Earnings Reserves For years ended December 31, 2012 and 2013
(In Millions) 2013 2012
Net revenues $505 $440
Cost of goods sold (253) (220)
Gross profit 252 220
Selling, general, and administrative expenses (124) (111) Other operating income and (expenses) 0 0
Operating profit 128 109
Other income and (expenses) 1 1
Profit before taxes 129 110
Income tax expense (40) (34)
Net profit (loss) $89 $76
Other comprehensive income 24 24
Comprehensive income (loss) $113 $100
BISCHOFF GLOBAL SPORTSWEAR INCOME STATEMENT
December 31, 2013 and December 31, 2012
(In Millions)
Assets 2013 2012
Current
Cash and cash equivalents $31 $13 Accounts receivable, net 84 66
Inventories 158 109
Other current assets 229 178
Total current assets 502 366
Non-current
Property, plant, and equipment, net 194 175 Other non-current assets 233 199
Total non-current assets 427 374
Total assets $929 $740
Liabilities and Stockholders' Equity Liabilities
Current
Accounts payable 25 35
Other current liabilities 84 88
Total current liabilities 109 123
Non-current
Long-term borrowings 105 60
Other non-current liabilities 102 71
Total non-current liabilities 207 131
Total liabilities 316 254
Stockholders' equity
Share capital 253 214
Other stockholders' equity 360 272
Total stockholders' equity 613 486
Total liabilities and stockholders' equity $929 $740
BISCHOFF GLOBAL SPORTSWEAR STATEMENTS OF FINANCIAL POSITION
$214 $239 $33 $486 December 31, 2012 2012 $13 66 109 178 366 175 199 374 $740 35 88 123 60 71 131 254 214 272 486 $740 $740 = -A Assets L Liabilities OE Owners' Equity $254 $486 $253 $310 $50 $613 December 31, 2013 2013 $31 84 158 229 502 194 233 427 $929 25 84 109 105 102 207 316 253 360 613 $929 $929 = -A Assets L Liabilities OE Owners' Equity $316 $613 $127 = OE Change in Owners' Equity
Other events or circumstances during the period that changed the value of net assets Transactions with owners during
the period that changed the value of the net assets
$14 $113 Net Profit (Loss) Other Comprehensive Income Contributions from owners $39 Income Gains Revenues Expenses Losses + - Distributions to owners $25 + Change in accounting policy and restatements $0 Comprehensive Income + Ordinary Expenses -+ - -Comprehensive income Profit (loss) 89
Other comprehensivev income 24
Total 89 24
Common stock issued 10 10
Dividends declared (25) (25) Other 29 7 (7) 36 $89 $89 89 $24 24 24 $113 $113 113
Figure 4 Accounting is not a spectator sport — it’s game time
This figure lists Scenic route menus for additional information.
Accounting is not a spectator sport – it’s game time Identify things you don’t know Take corrective actions Check the solutions Tackle the exercises Seek additional information as needed Scenic route menu
Scenic 1: Statement of changes in owners’ equity (SCOE) • Goal
• Connect BS to SCOE • Connect OEC map to SCOE • Company disclosures
• Vodafone • América Móvil • AT&T • Take-aways
