Hi.

Else here.

And in this video, we'll be exploring

the statement of changes in equity under IFRS.

First, let's remind ourselves of the proper order

of the financial statements.

The Income Statement comes first.

The profit or loss at the bottom of the statement,

which is a measure of a company's performance,

is the opening number in the Statement

of Comprehensive Income.

This statement then adds or deducts

unrealized gains or losses to provide

a broader definition of profit or loss,

one that includes both realized and unrealized amounts.

The unrealized gains or losses on the Statement

of Comprehensive Income are then transferred to the Statement

of Changes in Equity.

Company's following IFRS must prepare a Statement of Changes

in Equity, which reports how profits, dividends, shares,

and other items have affected shareholders' equity.

Information from this statement helps

users watch and assess equity so they can make decisions

about financing.

In order to understand the Statement of Changes in Equity,

we must first understand what makes up the element equity.

Equity is made up of two or more items.

We'll cover the three most common

and save the others for future videos.

Share capital represents the amount of cash,

goods, or services a company received in exchange

for a company's shares.

The most common form of equity is

when shares are sold to the public in exchange for cash.

This is called a direct investment by the shareholders

because the shareholders choose to invest directly

in the company by buying the shares of the company.

Shareholders indirectly contribute capital

when the company decides to retain profit

instead of paying it out to the shareholders

in the form of dividends.

This indirect investment is called retained earnings.

Retained earnings is increased by profit

and decreased by dividends paid out

to shareholders as well as losses from the Income

Statement.

The amount of retained earnings represents

all past profits kept in the business

to help a company grow less all past dividends paid,

as well as losses.

Another item in equity is accumulated

other comprehensive income.

This is the total of all unrealized gains and losses

from the Statement of Comprehensive Income

since the company began.

This amount is increased by unrealized gains

and decreased by unrealized losses.

Now that we understand the items that make up the equity

element, let's take a look at the structure of the Statement

of Changes in Equity.

As always, the statement starts with the heading,

which must include the company name,

the title of the financial statement,

and the time period covered.

Notice that this statement is set up in columns,

starting with shares and ending with a total column.

The order of the columns must be the same

as the order of these items as they

are listed on the Statement of Financial Position

under the shareholders' equity section.

The body of the statement always starts

with the beginning balances.

These beginning balances are the closing balances

from the prior year statement.

Next, items that impact the different columns

are added or deducted.

Let's look at each column individually so we can better

understand which items must be taken into account.

First, let's focus on the Share Capital column.

Here we denote it as common shares.

The beginning balance comes from the prior year

statement of changes in equity.

Notice that the only things that impact share capital

are the transactions that cause share capital to change,

here the issue of shares and the repurchase of shares.

This makes sense because we are trying

to show users details of what caused share capital to change

over a period of time.

The closing balance for the current year

will be transferred to the Statement

of Financial Position.

Next, we'll look at the Retained Earnings column.

Again, opening balances come from the prior year Statement

of Changes in Equity and closing balance

are transferred to this Statement

of Financial Position.

Where does the profit for the year come from?

Well, the profit or loss on the Income Statement

is added or deducted from the opening retained earnings.

Here we took the profit of $17,100

from the Income Statement and added it

to the opening retained earnings from the prior year.

We also deducted the dividends declared or paid

to shareholders because they represent a payout of profit

to the shareholders.

Next, we look at the Accumulated Other Comprehensive Income

column.

The opening balance again come from the prior year's closing

balance on the Statement of Changes in Equity.

Then, the unrealized gains and losses

that were detailed on the Statement of Comprehensive

Income are added or deducted from the opening balance

to obtain the closing balance.

It is very important to notice that the actual amount

of other comprehensive income, the amount at the bottom

of the Statement of Comprehensive Income,

never shows up on the Statement of Changes in Equity.

To see this clearly, let's quickly

flip back to the Statement of Comprehensive Income,

which we covered in a previous video.

Notice that the total comprehensive income

amount is $18,200.

This number never shows up in the Statement

of Changes in Equity.

In fact, it never shows up anywhere else.

Instead, only the individual amounts of the unrealized gains

and losses are transferred to the Statement of Changes

in Equity under the Accumulated Other Comprehensive Income

column.

These individual amounts are the ones

transferred to the Statement of Changes in Equity.

It's important to remember this when you develop the statement.

Going back to the Statement of Changes in Equity

in its entirety, we can see that at the bottom of the statement

we have all the amounts that will be transferred

to the shareholders' equity section of the Statement

of Financial Position

Pause the video to answer the Check Your Understanding

question.

What would be the company's ending retained earnings

given the amounts provided?

A is incorrect because it includes the gain

from revaluing investments.

And this item belongs only in the Accumulated Other

Comprehensive Income column.

C is incorrect because it includes

the issue of shares, which belongs only

in the Share Capital column.

D is incorrect because it includes all the numbers given.

B is the correct answer because it

includes only the opening retained earnings

plus the revenue less the dividends

paid and less the expenses.

There are many uses for the Statement of Changes in Equity.

But right now we'll focus only on the information

from the Retained Earnings column and how it is used.

Investors use information about retained earnings

to predict future dividend payouts.

They also use it to see if the company is

retaining enough profit for future expansion.

Lenders use it to determine if dividend payouts are

appropriate and leave enough cash for debt repayment.

Other creditors use retained earnings information

to see if the company is investing profit back

into the company for future expansion or growth.

As you already know, the Statement of Changes in Equity

is connected to the shareholders' equity

section of the Statement of Financial Position, which is

the topic for our next video.

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