Additional Paid-in Capital on Balance Sheet - YouTube

hello everyone hi welcome to the channel of WallStreetmojo watch the video

till the end also if you are new to this channel then you can subscribe us by

clicking the bell ican friends today we are going to learn a concept which is

additional paid-in capital on the balance sheet and now what we have over

here is the extract part from the balance sheet as you can see there's an

shareholders equity under which you have common stock then you have additional

paid-in capital retained earnings and so on and so forth it goes on but the most

important thing that we are here to understand is the additional pay gap or

what exactly this is all about that let's understand this the very initial

and additional paid-in capital is basically you know the amount that is

excess it is the excess of the par value and it is listed on the balance sheet so

if we deduct the Par Value from the if we deduct the Par value from the issue price that

is listed on the balance sheet will get the additional paid-in capital now is a

thing called par value of for stock so the par value of the stock is the

minimum amount that must be made to owner share now it means that you know

to acquire a share this is the Based amount that has to be paid like for

example if a share is issued at let's say $50 per share and it has a par value

of $5 it is issued and it has par value standing at $5 now we will conclude

that you know this $5 per share is the minimum amount that must be paid

required each share so the base amount is also called as the legal right over

here legal capital of the come secured the APIC that is the additional

paid-in capital comes in and since each investors of the company they pay the

whole amount that is the they pay the issue price to acquire one share

anything about the par value is APIC from now onwards I'm going to talk as

API therefore you know the additional paid in capital formula is going to be

something like this the issue price - the par value is into the number of

shares issued that will give us additional paid-in capital

now there is another that you need to consider while calculating the

additional paid-in capital if the shares are purchased from the company

during let's say the IPO let's say FPO directly then there would be APIC

above the par whatever saying the APIC will be about that it would be greater

than the Par value now however if the shares are purchased from the secondary

market let's say we say that you know these shares are purchased from the

secondary market then what exactly will go about in that particular scenario it

would not affect the APIC of company all so let's understand this with an example

let's take an example to understand the apic on the balance sheet better let's

say there is a company called infinite Inc and it has issued the equity shares

that are standing at 10000 at $50 per share

now the par value of each shares is let's say standing at $1 per share what

we need to do we need to find the APIC this is an easy to understand example

that can you know illustrate how to approach the additional paid capital on

the balance sheet so cash proceeds that is going to

be the cash proceeds that you are going to receive is how much it's going to be

50 into 10,000 right then you will be having a thing called

common stock so your common stock is going to be one that is your par value

into 10,000 so that's gonna be in total 10,000 as a part of your common stock

and the additional paid-in the additional paid-in capital is going to

be is equal to bracket ($50 – $1) into number of shares so C 5 sorry C 4

perfect there's there's a 4,90,000 so infinite Inc has issued her 10,000

equity shares at 50 each and that means a total equity capital would be 10,000

into 10 the total I am talking about the total equity capital that is going to be

is equal to 10,000 into 10 that's going to be $1,00,000 if the shares are

standing it let's say 50 per share that means the total equity share capital

will be 10,000 into right so the catch is the par value which is just $1 and

that means that we need to attribute the respective amount to par value stock so

here the par value would be our 10000*1 10000*1

that's $10,000 and the rest would be the

additional paid in capital on the balance sheet because as it is over and

above the par value that means the additional paid in capital formula will

be as simple going to be 50 - 1 divided by the number of shares oh then

the total apic in this scenario is going to be 10000*49 right so

that's 4,90,000 that's what we evaluated now there are gonna be some

journal entries that will go about with Additional Paid in capital now how would

we pass the accounting entry for the additional paid-in capital on balance

you see first of all we need to think that you know about the legal capital

that is you know the par value stock amount now since that's the legal

capital we attribute the amount to the common stock account so the rest of the

amount that is the issue price less the value per share would be attributed to

apic right so the entry would be first cash account would be debited because

that's the amount you are receiving since cash is an asset and by receiving

the whole amount that is a total equity capital the company's assets cash is

increasing second we would do what we will credit the common stock will credit

the common stock account and the apic account in the respective portion right

now I hope you have got a clear idea regarding the example part journal entry

part now I'm going to explain you the reasons for the changes in the

additional capital what are the reasons that leads to changes in the

additional paid-in capital in the balance sheet now if you if you see over

here this is the Colgate's example this is a Colgate's extract this is a

snapshot of the additional paid-in capital on the balance and we know that

you know the apic has been changing each year now changes we note that the

changes in the apic of the Colgate is due to three reason first the share

based compensation expenses is 127 million the shares issued for stock

option is 197 and the share issued for their restricted stock awards is

negative 34 so the share based compensation expense is reported in the

income statement and this result results in the lowering

the net income and thereby reducing the shareholders equity through retained

earning set so the contra entry for this would be assets is equal to liability

plus shareholders equity assets is equal to your liability plus your shareholders

equity as in share in the case of shareholders equity there will be

increase in the paid in capital will be increase in the paid in capital and the

owner's equity will reduce so this is going to be the impact so on a

conclusion note additional paid in capital and the balance sheet has

nothing to do with the market price of the share nothing to do with and it is

completely dependent on the issue price now if an investor purchases the share

from the company and it sells off to another investor at a higher price it

would not affect the capital of the company so that's it for this particular topic

if you have learned and enjoyed watching this video please like and comment on

this video and subscribe to our channel for the latest updates thank you

everyone Cheers