18.0 Shareholders’ Equity

Learning Objectives

After completing this chapter, you should be able to:

1. Describe the different forms of equity and identify the key features that are important for accounting purposes.
2. Explain and apply accounting standards for different types of share issues.
3. Explain and apply accounting standards for different situations that can occur when shares are reacquired.
4. Describe the accounting treatments for different types of dividends and calculate divided allocations when preferred shares exist.
5. Describe the presentation and disclosure requirements for shareholders’ equity accounts.
6. Identify differences in the accounting treatment of shareholders’ equity between IFRS and ASPE.

Introduction

The Conceptual Framework provides a deceptively simple definition for equity: “the residual interest in the assets of the entity after deducting all its liabilities” (CPA Canada, 2016, Part I, The Conceptual Framework for Financial Reporting, 4.4 (c)). This definition confirms the most elementary principle in accounting, which is embodied in the accounting equation: Assets = Liabilities + Equity. This apparent conceptual simplicity is further confirmed by the fact that IFRS does not actually contain a separate handbook section devoted to shareholders’ equity. However, despite this lack of structured guidance, we should not define equity as a simple concept that doesn’t require much attention. On the contrary, there are a number of ways in which the accounting, presentation, and disclosure of equity transactions can be quite complex. Although equity is the residual interest of the business’s owners, it is not simply a plug figure used to balance the accounting equation. In this chapter, we will discuss some of the complexities in accounting for equity transactions and we will look at the presentation and disclosure requirements for what can be legally complicated instruments.

Chapter Organization