Owners Equity | Formula | Calculation (with Example) - YouTube

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clicking the bell ican friends today we have topic is owner's equity what exactly this owner's

equity is all about we are here to discuss that as you can see there's an

extractor that has been taken from the balance sheet in the shareholders equity

we have preferred stock we have common stock and other things like Treasury

stock additional paid-in capital so these are all the owners capital equity

preference Treasury additional paid-in capital

accumulated and other comprehensive losses retained earning and so on and so

forth so these are all the part and parcel of our understanding let's try

and evaluate now what is the owner's equity see owners ownership is the business

the business that is the amount of the business assets

business assets that have been owned by the business owner in other words it

shows the amount the owner has invested in the business - need to deduct any

money that the owner has taken out of the business as withdrawals so owner's

equity can be defined as the the residual

interest in the assets that remains after subtracting the entity's Liabilities

so starting a business requires you know the investment of the funds by the owner

of the business and these funds are required to invest in assets of the

business such funds can either be invested

but they owners through their own sources or they can be borrowed

externally so this is a proportion of the assets that has been financed by the

owners of the business the term is popularly used in case of

the sole proprietorship in the case of the company from the business term is

used for the stockholders because the business is owned by the stockholders

holding the shares of the company both have the same meaning it is only the

form of the business so let's check the formula for this the owner's equity is

going to be your assets less any liabilities ease that

comes in the due course so thing called contributed capital

it is the amount that has been paid by the common stockholders

of the company that is you know the par value

the common stock then there is a thing called additional paid-in capital

well the additional paid in capital includes the cash proceeds

that is receiving from the common stock sales in excess of the par then the

next we have the retained earnings

retained earnings is basically the cumulative net income that has been not been

distributed in the form of the dividend in said its retained in the business for

the future investments and growth you have the next item as the other

comprehensive income well the other comprehensive income includes the

changes that resulting on account of the unrealized gains or losses in the

investment so on account of the foreign currency translation that means I mean

to say the foreign currency are gains and losses that are arising on account

of the conversion of the parent companies or the foreign subsidiary into

local currency and so on and so forth so this is the equity that is remaining

interest in the assets of the company this includes the contributed capital

preferred stock retained earnings the accumulated and the included profit

comprehensive income that is also referred as the you know the book value

of the company because this equity is equal to the reported assets amount

minus the reported liability amount in the balance sheet let's take an example

so on so that we have really a good eye view on this particular topic let's

understand I know how to compute this equity with the help of some owners I

equity examples this is going to be example number one which says you know there is

a company called ABC International they want to know the shareholders equity at

the end of the financial year 2070 so as on the date the company is having the

equipment that is valued

let's say add I'm going to write directly the amount fine and it has

inventory also with them which is valued at 2,00,000

and they have the business Debtors standing at 4,00,000 so the company is also

having a bank loan which is standing at 3,00,000 they also have the business

creditors standing at let's say 5,00,000 on the same day so what we know

that you know the owner's equity is all the assets minus liabilities right so over

here the assets are the equipment the inventory the business debtors less the

liability that is a bank loan and the business creditors

well the assets equipment inventory and business debtors that is in total 11,00000

is a as you can see over you the total amount is our assets and this bank loan

plus business creditors which is 8,00,000 that is our liabilities so finally

this is the owner's equity that's that's how we find now let's take out the

example number two let's say if the company has a common stock that is

standing 5,50,000 they have the preferred stock that is

standing at let's say 1,75,000 they have the retained earnings that is

standing at $2,50,000

and they have the accumulated and the other comprehensive income which is

trending at $46,000 so they also have what we call as the investment in bear

in the company at a fair value which is costing at $1,50,000

so well the owner's equity formula and that's the common stock plus

preference shares plus the retained earnings and the other accumulated

income and the comprehensive income and investment so we'll try and figure out

the amount that is 5,50,000 1,75,000 +

2,50,000 +46000 that's gonna be 102000

investment won't be part of it let's it is unrealized gain which is

standing at 30000 the beta company which is already included in the

accumulated and the other comprehensive income and hence it is not included

again for calculating the shareholders act so now this is basically the measure

to assess you know how much a company's net assets that belong to the

shareholders and it also shows a company that is utilizing the net asset of the

company now also sees you know if there is any return in earnings which are not

being distributed in the form of dividend and capital which is invested

by the owners of the business so a high shareholders equity what does that

indicate it indicates that the business is mostly funded from the internal

source and less amount from the external debt

so how does shareholders equity on the balance sheet is shown well it is shown

something like this you know there's a current assets the liability and the

equity details right in front of you all the details as for the is number one the

IFRS it defines you know which the financial statements of the owners

equity are required to be prepared and how they once you present it in the

statement of the owners are equity so the statement of the owner's

equity shows the changes in the capital and the balance sheet of the business

over the reporting period we have this details usually the statement of the

owner's equity is prepared on the sole proprietors type of the business what we

need to know that you know there also is the statement of the owner's equity

which changes in one of the required financial statement that are to be

prepared in compliance with the accounting standard so well that's it

for the shareholders equity with this statement of balance sheet and the

detailed discussion one can easily analyze the movement of the equity and

how things go about with this particular arena so that's it for this particular

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