Contributed surplus is a capital paid in by stockholders in excess of the par value. Alternative terminology is additional paid-in capital (APIC) or additional contributed capital (Wanjialin G. 2004, p. 20).
S.M.H. Collin describes surplus as 'more of something than is needed' and capital surplus as the total value of shares in a company that exceeds the par value (Collin S. M. H. 2007, p. 36 and p. 216).
Guy Wanjialin defines additional paid-in capital (APIC) as capital contributed by shareholders in excess of the par value or stated value. He also sets contributed capital in excess of par value as the amount by which contributed capital exceeds the book value of the stock (Wanjialin G. 2004, p. 20 and p.95).
Par Value (also known as nominal value or face value) is the contractual amount of an obligation or security as declared on its front. This is an arbitrary amount that is allotted at issuance. On the par value in also calculated the coupon interest rate. Because the market forces establish the value of shares, the signification of the par value is to define the minimum amount per stock which shareholders are obliged to pay for purchased shares (Patterson R. 2008, volume 5, p. 37).
Record on the balance sheet
Additional paid-in capital is found on the company's balance sheet and it is recorded in shareholder's equity. Contributed capital is the total amount paid-in by the shareholders. As we could read in “Accounting Principles” there are two classifications presented on the balance sheet within contributed capital. One of them is share capital which consists of preferred and common shares. The second is contributed surplus. The most common sources of contributed surplus are:
- The amount in excess of the actual share issue price and its par value
- The retirement of shares for less than average per share amount
- Donations of assets to the corporation.
Authors suggest noting what is important about this account, which is that contributed surplus is an equity account and on the balance sheet is reporting immediately following share capital and a separate contributed surplus account is used for each source for recording purposes (Weygandt J. J.,Kieso D. E., Kimmel P., D.Trenholm B., Warren V., Novak L. 2019 p. 13-22).
U.S. GAAP and IFRS
United States’ GAAP use term additional paid-in capital. It corresponds to share premium under IFRS. Capital surplus and paid-in surplus is an aged terminology for additional paid-in capital (Bellandi F. 2012, p. 155).
In the years 2009 and 2005 the American Institute of Certified Public Accountants (AICPA) did a survey which showed that 63% and 61% of the companies which presented an additional paid-in company account on the balance sheet used the name additional paid-in capital. Afterward, respectively, 10% and 11% used the paid-in capital, 3% capital surplus. Capital in excess of par value or stated value used approximately 17% and 20%. Other companies included in this study used other expressions and no one used paid-in surplus (Bellandi F. 2012, p. 155).
The corporation in its initial public offering (IPO) issued 15, 000 shares of €0.10 par value common stock for €10 cash per share. The €1,500 Common Stock amount reported as the total par value of the shares is the par value per share times the total number of shares issued (15,000 shares x €10 per share). The difference between the proceeds from the sale of stock of €150,000 (15,000 x €10) and the par value of €1,500 amount €148,500 and it is reported as additional paid-in capital (APIC) (Stickney C. P., Weil R. L., Schipper K., Francis J. 2010, p. 121).
- Bellandi F. (2012), Dual Reporting for Equity and Other Comprehensive Income under IFRS and U.S. GAAP, John Wiley & Sons, Padstow
- Collin S. M. H. (2007), Dictionary of Accounting, A&C Black Publishers, London
- Patterson R. (2010), Compendium of Accounting in Polish & English, vol. 5, Wydawnictwa Akademickie i Profesjonalne, Warsaw
- Stickney C. P., Weil R. L., Schipper K., Francis J. (2010), Financial Accounting: An Introduction to Concepts, Methods and Uses, South-Western Cengage Learning
- Weygandt J. J.,Kieso D. E., Kimmel P. D., Trenholm B., Warren V., Novak L. (2019), Accounting Principles, Volume 2, Loose-Leaf Print Companion, John Wiley & Sons
- Wanjialin G. (2004), An International Dictionary of Accounting and Taxation, iUniverse, Lincoln
Author: Natalia Supernak