| Capital Surplus |
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| generally accepted accounting principles | |
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Taken together, common stock issued and paid plus capital surplus represent the total amount actually paid by investors for shares when issued (assuming no subsequent adjustments or changes). Shares for which there is no Par Value will generally not have any form of capital surplus on the balance sheet; all funds from issuing shares will be credited to common stock issued. Some other scenarios of causing Capital Surplus include Government donate a piece of land to the company. BACKGROUND Many firms issue shares with some nominal par value, often the smallest unit of currency commonly in use (such as one penny or $0.01), in many jurisdictions due to legal requirements. The firm may then sell these shares for a much higher price (as the par value is a largely archaic and fictional concept). Any premium received over the par value is credited to capital surplus. EXAMPLE A firm is established and created with 100 shares with a par value of $0.01. These shares are bought by investors for $1 each. The firm's balance sheet at this point consists of only three items: Assets: :Cash $100 Liabilities: :Nil Shareholders' Equity : :Common stock $1 :Capital surplus $99 EXTERNAL LINKS |
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