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Financial Statements - Lecture 6 - Statement of Changes in Equity - IFRS - YouTube
Channel: Else Grech Accounting
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hi else here and in this video we'll be
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exploring the statement of changes in
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equity under IFRS first let's remind
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ourselves of the proper order of the
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financial statements the income
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statement comes first the profit or loss
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at the bottom of the statement which is
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a measure of a company's performance is
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the opening number in the statement of
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comprehensive income this statement then
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adds or deduct unrealized gains or
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losses to provide a broader definition
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of profit or loss one that includes both
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realized and unrealized amounts the
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unrealized gains or losses on the
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statement of comprehensive income are
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then transferred to the statement of
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changes in equity companies following
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IFRS must prepare a statement of changes
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in equity which reports how profits
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dividends shares and other items have
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affected shareholders equity information
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from this statement helps users watch
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and assess equity so they can make
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decisions about financing in order to
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understand the statement of changes in
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equity we must first understand what
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makes up the element equity equity is
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made up of two or more items we'll cover
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the three most common and save the
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others for future videos share capital
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represents the amount of cash goods or
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services a company received in exchange
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for a company's shares the most common
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form of equity is when shares are sold
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to the public in exchange for cash this
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is called a direct investment by the
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shareholders because the shareholders
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choose to invest directly in the company
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by buying the shares of the company
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shareholders indirectly contribute
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capital when the company decides to
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retain profit instead of paying it out
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to the shareholders in the form of
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dividends this indirect investment is
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called retained earnings retained
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earnings is increased by profit and
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decreased by dividends paid out to
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shareholders as well as losses from the
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income statement the amount of retained
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earnings represents all past profits
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kept in the business to help a company
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grow less all past dividends paid as
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well as losses another item in equity is
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accumulated other comprehensive income
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this is the total of all unrealized
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gains and losses from the statement of
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comprehensive
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of income since the company began this
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amount is increased by unrealized gains
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and decreased by unrealized losses now
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that we understand the items that make
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up the equity element let's take a look
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at the structure of the statement of
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changes in equity as always the
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statement starts with the heading which
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must include the company name the title
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of the financial statement and the time
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period covered
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notice that the statement is set up in
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columns starting with shares and ending
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with a total column the order of the
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columns must be the same as the order of
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these items as they are listed on the
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statement of financial position under
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the shareholders equity section the body
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of the statement always starts with the
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beginning balances these beginning
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balances are the closing balances from
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the prior year statements next items
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that impact the different columns are
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added or deducted let's look at each
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column individually so we can better
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understand which items must be taken
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into account first let's focus on the
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share capital column here we denote it
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as common shares the beginning balance
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comes from the prior year's statement of
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changes in equity notice that the only
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things that impact share capital are the
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transactions that caused share capital
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to change here the issue of shares and
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the repurchase of shares this makes
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sense because we are trying to show
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users details of what caused share
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capital to change over a period of time
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the closing balance for the current year
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will be transferred to the statement of
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financial position next we'll look at
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the retained earnings column again
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opening balances come from the prior
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year's statement of changes in equity
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and closing balance are transferred to
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the statement of financial position
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where does the profit for the year come
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from well the profit or loss on the
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income statement is added or deducted
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from the opening retained earnings here
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we took the profit of 17100 from the
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income statement and added it to the
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opening retained earnings from the prior
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year we also deducted the dividends
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declared or paid to shareholders because
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they represent a payout of profit to the
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shareholders next we look at the
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accumulated other comprehensive income
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column the opening balance again come
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from the prior year's closing balance on
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the statement of changes in equity then
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the unrealized gains and losses that
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were detailed on the statement of
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comprehensive income are added or
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deducted from the o
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imbalance to obtain the closing balance
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it is very important to notice that the
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actual amount of other comprehensive
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income the amount at the bottom of the
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statement of comprehensive income never
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shows up on the statement of changes in
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equity to see this clearly let's quickly
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flip back to the statement of
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comprehensive income which we covered in
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a previous video notice that the total
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comprehensive income amount is eighteen
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thousand two hundred this number never
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shows up in the statement of changes in
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equity in fact it never shows up
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anywhere else instead only the
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individual amounts of the unrealized
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gains and losses are transferred to the
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statement of changes in equity under the
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accumulated other comprehensive income
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column these individual amounts are the
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ones transferred to the statement of
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changes in equity it's important to
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remember this when you develop the
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statement going back to the statement of
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changes in equity in its entirety we can
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see that at the bottom of a statement we
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have all the amounts that will be
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transferred to the shareholders equity
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section of the statement of financial
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position pause the video to answer the
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check your understanding question what
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would be the company's ending retained
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earnings given the amounts provided a is
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incorrect because it includes the gain
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from revaluing investments and this item
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belongs only in the accumulated other
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comprehensive income column C is
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incorrect because it includes the issue
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of shares which belongs only in the
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share capital column D is incorrect
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because it includes all the numbers
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given B is a correct answer because it
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includes only the opening retained
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earnings plus the revenue less the
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dividends paid and less the expenses
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there are many uses for the statement of
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changes in equity but right now we'll
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focus only on the information from the
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retained earnings column and how it is
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used investors use information about
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retained earnings to predict future
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dividend payouts they also use it to see
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if the company is retaining enough
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profit for future expansion lenders use
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it to determine if dividend payouts are
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appropriate and leave enough cash for
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debt repayment other creditors use
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retained earnings information to see if
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the company is investing profit back
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into the comp
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for future expansion or growth as you
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already know the statement of changes in
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equity is connected to the shareholders
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equity section of the statement of
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financial position which is the topic
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for our next video
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