Changes in Equity Financial Capital and Physical Capital

Statement of

Statement of Changes in Equity

Basic Statement

Elements orComponents

Shareholder’s Equity

Owners

Components

a) Comprehensive income for the periodb) Effect of changes in accounting policies and

correction of errorsc) Reconciliation between the carrying amount at

the beginning and end of the period, disclosing changes from:

1) Profit or loss2) Each item of other comprehensive income3) Transactions with owners in their capacity as owners

showing separate contributions by and distributions to owners

Statement of Retained Earnings

Directchanges

RetainedEarnings

IncomeStatement

FinancialPositionNo longer

required

Data affecting the RE

a) Profit or loss for the periodb) Prior period errorsc) Dividends declared and paid to shareholdersd) Effect of change in accounting policye) Appropriation of retained earnings

Net Income- the amount an entity can distribute to the owners and be

as “well-off” at the end of the year as at the beginning

Transaction Approach

Traditional approach of determining income

Capital Maintenance Approach

Net income occurs only after the capital used from the beginning of the period is maintained

Financial Capital

The monetary amount of the net assets contributed by shareholders and the increase in net assets resulting from earnings retained by the entity Invested money or invested

purchasing power and synonymous with net assets or equity of the

entity

Net income occurs “when the financial or nominal amount of the net assets at the end of the year exceed the financial or nominal amount of the net assets at the beginning of the period, after excluding distributions to and contributions by owners during the period”

Historical Cost

Physical Capital

The quantitative measure of the physical productive capacity to produce goods and services Units of output per day or physical

capacity of productive assets to produce goods and services

Net income occurs “when the physical productive capital of the entity at the end of the year exceeds the physical productive capital at the beginning of the period, after excluding distributions to and contributions from owners during the period”

Current CostThe current costs for these productive

assets must be maintained in order that physical capital is also maintained