Capital surplus

Capital surplus

Capital surplus is an accounting term which frequently appears as a balance sheet item as a component of shareholders' equity. Capital surplus is used to account for any funds the issuing firm has received over and above the par value of the common stock. It may also be used to account for any gains the firm may derive from selling treasury stock, although this is less commonly seen.

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.

Capital Surplus is also a term used by economists to denote capital inflows in excess of capital outflows on a country's balance of payments.

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 $100Liabilities::Nil
Shareholders' equity::Common stock $1:Capital surplus $99

External links

* [http://www.investopedia.com/terms/c/capitalsurplus.asp Capital Surplus]
* [http://beginnersinvest.about.com/cs/investinglessons/l/blles3capsurres.htm Capital Surplus and Proprietorship Reserves]


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Look at other dictionaries:

  • capital surplus — see surplus Merriam Webster’s Dictionary of Law. Merriam Webster. 1996 …   Law dictionary

  • capital surplus — n. 1. any surplus of a business firm not derived from direct earnings or profits 2. the excess of the amount of money received by a corporation for a stock issue over the stock s par or stated value …   English World dictionary

  • capital surplus — noun : the portion of the surplus of a business arising from sources other than earnings : all surplus other than earned surplus usually including amounts received from sale or exchange of capital stock in excess of par or stated value, profits… …   Useful english dictionary

  • Capital Surplus — Equity which cannot otherwise be classified as capital stock or retained earnings. It s usually created from a stock issued at a premium over par value. Capital surplus is also known as share premium (UK), acquired surplus, donated surplus, paid… …   Investment dictionary

  • Capital surplus — Amounts of directly contributed equity capital in excess of the par value. The New York Times Financial Glossary * * * capital surplus capital surplus ➔ surplus1 …   Financial and business terms

  • capital surplus — Amounts of directly contributed equity capital in excess of the par value. Bloomberg Financial Dictionary * * * capital surplus capital surplus ➔ surplus1 …   Financial and business terms

  • capital surplus — the surplus of a business, exclusive of its earned surplus. * * * …   Universalium

  • capital surplus — /kæpətl ˈsɜpləs/ (say kapuhtl serpluhs) noun the surplus of a business, exclusive of its earned surplus …  

  • capital surplus — noun A balance sheet item under shareholders equity. Increases by the value above an original par value per share that newly issued shares are sold for …   Wiktionary

  • capital surplus — In the USA, the difference between the par value of a share and its issue price. It is the equivalent of a share premium in the UK …   Accounting dictionary

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