Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd
Upload
348 views

FABM2 Module 03 (Q1-W4)

This document provides instruction on preparing a Statement of Changes in Equity (SCE) for different business organizations. It defines key SCE terms like initial investment, additional investment, and withdrawals. It also explains the differences in SCE presentation for sole proprietorships, partnerships, and corporations. Examples of completed SCEs are provided for each business type. The document concludes with practice problems to test comprehension of SCE preparation.

Uploaded by

Christian Zebua
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
348 views

FABM2 Module 03 (Q1-W4)

This document provides instruction on preparing a Statement of Changes in Equity (SCE) for different business organizations. It defines key SCE terms like initial investment, additional investment, and withdrawals. It also explains the differences in SCE presentation for sole proprietorships, partnerships, and corporations. Examples of completed SCEs are provided for each business type. The document concludes with practice problems to test comprehension of SCE preparation.

Uploaded by

Christian Zebua
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 6

Module 03 (Q1-Week 4): Statement of Changes in Equity (SCE)

I. LEARNING COMPETENCIES
1. Discuss the different forms of business organization.
2. Prepare a SCE for a single proprietorship.
3. Reflect on the importance of preparing the SCE.

II. LESSON PRESENTATION


Review
Give specific account titles for each of the terms below:
1. Revenues

2. Expenses

3. Income

4. Assets

5. Liabilities

6. Equity

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. (Haddock, Price, & Farina, 2012).
In this module, you are going to learn how create an SCE for a sole/single
proprietorship. You are also going to have an overview of the SCEs of a partnership and
corporation.
First, let us recall the different forms of business organization:
Single/Sole Proprietorship –An entity whose assets, liabilities, income and expenses are
centered or owned by only one person (Haddock, Price, & Farina, 2012).
Partnership – An entity whose assets, liabilities, income and expenses are centered or owned
by two or more persons (Haddock, Price, & Farina, 2012).
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 (Haddock, Price, & Farina, 2012).

1
Below is an example of a SCE for a single/sole proprietorship business:

Image 3.1. Sample Statement of Changes in Equity (Source: DepEd FABM 2 Teaching Guide)

Initial Investment, Additional Investment and 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
(Haddock, Price, & Farina, 2012).
Withdrawals –Decreases to owner’s equity by withdrawing assets by the owner (Haddock,
Price, & Farina, 2012).
*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).

Parts of the Statement of Changes in Equity

Image 3.2. Parts of the Statement of Changes in Equity (Source: DepEd FABM 2 Teaching Guide)

2
Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation (emphasis on the wording – “for the”)
To Note: The use of “for the” means that amounts in the SCE are changes during the period. This means that
what happened in the previous years are not included in the Statement.
Increases to Equity
i. Net income for the year
ii. Additional investment
Decreases to Equity
i. Net loss for the year
ii. Withdrawals by the owner

Statement of Changes in Equity of a Partnership and a Corporation

Image 3.3. Statement of Changes in Equity of a Partnership (Source: DepEd FABM 2 Teaching Guide)

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.)

3
LEARNING IS FUN COMPANY
STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2016

Image 3.4. Statement of Changes in Equity of a Corporation (Source: DepEd FABM 2 Teaching Guide)

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.

III. SUMMARY OF LESSON


 Statement of Changes in Equity is a financial statement where increases or decreases to the
owner’s interest on the company during the period are reported.
 Initial Investment is the very first investment of the owner.
 Additional Investment increases the owner’s equity by adding investments.
 Withdrawals decreases the owner’s equity by withdrawing assets.
 In a corporation, instead of withdrawal, the corporation distributes the income to the
shareholders based on the shares that they have (percentage of ownership of the
company).
 In a partnership SCE, the changes in the capital account of each partner is presented. The
net income is divided between partners.
 In a corporation SCE, the names of the shareholders are not indicated. Instead, the
corporation keeps an official list of the shareholders. Instead of withdrawals, distribution of
net income to shareholders decreases the Capital of the corporation.

4
IV. PRACTICE
A. Theory
Direction: Answer the following questions. Answer on a separate sheet. (2 pts. each)
1. Which form of business organization puts the least risk on its owners?
2. Which form of business organization is owned by only one person?
3. Increases in owner’s equity without additional investment
4. Decreases to owner’s equity apart from net effect of revenues and expenses.

B. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet. (5
pts. each)
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.
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.

C. Preparation of Statement of Changes in Equity


Direction: Prepare the Statement of Changes in Equity. Answer on a separate sheet. (10 pts.)
The following balances were retrieved from the records of Juan’s Janitorial Services for the year
ended December 31, 2016:
Capital, January 1, 2016 P 500,000
Withdrawals 100,000
Additional Investments 50,000
Net Loss 45,000

V. ENRICHMENT
Direction: Answer the following questions in 3-5 sentences. Answer on a separate sheet. (5 pts.
each; Correctness of Ideas - 3, Organization of Ideas - 2)
1. How can a company can earn a lot, have numerous assets and yet have very small equities?
2. Can a person’s dream house become part of company assets?

VI. EVALUATION
A. Theory
Direction: Answer the following questions on a separate sheet. (2 pts. each)
1. Decreases in equity aside from withdrawals of the owners.
2. A type of business that is owned by at least 2 persons.
3. In the Statement of Changes in Equity, the company had decreases in capital wherein income
is distributed to owners. Identify the kind of business.

5
B. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet. (5
pts. each)
1. Owner, Juan invested an initial capital amounting P50,000 in order to put up his janitorial
services company. During the first year of operations (2016), the company had a loss of
P25,000. Because of this, Juan invested additional capital amounting to P50,000 in 2017. In the
second year (2017), the company had a net income of P100,000 and Juan withdrew P10,000 for
personal use. Compute for the ending capital balance of Juan for the year 2017.
2. Owner Juana invested P100,000 to start her laundry business. During the first year of
operations (2016), the company had a net income of P15,000. Juana invested additional
P100,000 to grow the business. In 2017, the business earned P50,000. As of December 31,
2017, Juana’s capital balanceis P200,000. How much is Juana’s withdrawal?

C. Preparation of Statement of Changes in Equity


Direction: Prepare the Statement of Changes in Equity. Answer on a separate sheet. (10 pts.)
The following balances were retrieved from the records of Roger’s barber shop for the year
ended December 31, 2020:
Balance at the beginning of the period P -0-
Capital contributed during the period 50,000
Net Profit for the period 965,000
Drawings 215,000

VII. RESOURCES
DepEd FABM 1 and 2 Teaching Guide
http://www.accounting-basics-for-students.com/statement-of-owners-equity.html#gallery[pageGallery]/2/

You might also like