Statement of changes in equity

Layout

One column for each component of equity, then a total column. Typical columns: Share capital, Share premium, Revaluation reserve, General reserve, Retained earnings, Total.

Rows, in order:

• Balance at the start of the year
• Issue of shares
• Profit for the year (to retained earnings)
• Other comprehensive income: revaluation gain (to revaluation reserve)
• Dividends paid (from retained earnings)
• Transfers between reserves
• Balance at the end of the year

Each row is totalled across, and each column added down. Use brackets for decreases.

Dividends

• Dividends paid during the year are deducted from retained earnings. Usually this is last year's final dividend (paid after shareholders approved it) plus this year's interim dividend.
• A final dividend proposed after the year end is not a liability at the year end (IAS 10): it is only disclosed in a note. It is deducted next year when paid.
• Dividend per share x number of shares in issue at the time of payment. If shares were issued mid-year, the interim dividend uses the new number.

Transfers do not change total equity

A transfer from retained earnings to the general reserve moves an amount between two columns: retained earnings falls, general reserve rises, total equity is unchanged. The same is true of a bonus issue (reserves fall, share capital rises).

Worked statement

Harbour Lights plc issued 500,000 £1 ordinary shares at £1.40, made a profit of £1,057,000, revalued land up by £150,000, paid last year's final dividend of 4p on 2,000,000 shares and an interim of 3p on 2,500,000 shares, and transferred £100,000 to the general reserve.

Statement of changes in equity (£)

Worked example

Using the statement above, show how closing retained earnings of £1,702,000 are reached.

1. Opening retained earnings £900,000
2. Add profit for the year £1,057,000
3. Less dividends paid: final 80,000 + interim 75,000 = £155,000
4. Less transfer to general reserve £100,000
5. 900,000 + 1,057,000 - 155,000 - 100,000 = £1,702,000

Answer: Closing retained earnings £1,702,000

Check yourself

1. Retained earnings at the start of the year were £640,000. Profit for the year was £290,000, dividends paid were £110,000 and £50,000 was transferred to the general reserve. Calculate closing retained earnings.
   Show answer

   £770000. 640,000 + 290,000 - 110,000 - 50,000 = £770,000.

2. A company issues 800,000 ordinary shares of £0.50 each at £1.25 per share. By how much does share premium increase?
   Show answer

   £600000. Premium per share = 1.25 - 0.50 = £0.75; 800,000 x 0.75 = £600,000.

3. On 1 October a company had 3,000,000 ordinary shares. On 1 January it issued 1,000,000 more. It paid a final dividend of 5p per share in November and an interim dividend of 2p per share in May. Calculate total dividends paid in the year.
   Show answer

   £230000. Final: 3,000,000 x £0.05 = £150,000. Interim: 4,000,000 x £0.02 = £80,000. Total £230,000.

4. Total equity at the start of the year is £5,400,000. During the year: shares issued for £600,000, profit for the year £720,000, revaluation gain £200,000, dividends paid £300,000, transfer to general reserve £100,000. Calculate total equity at the end of the year.
   Show answer

   £6620000. 5,400,000 + 600,000 + 720,000 + 200,000 - 300,000 = £6,620,000. The transfer does not change the total.

5. Directors propose a final dividend of £180,000 after the year end, to be approved at the AGM. How is it treated in this year's financial statements?
   • Shown as a current liability
   • Deducted from retained earnings this year
   • Added to the general reserve
   • Disclosed in a note only
   Show answer

   Disclosed in a note only. Under IAS 10 a dividend proposed after the reporting date is not a liability at that date; it is disclosed and deducted next year when paid.

6. What is the effect of transferring £200,000 from retained earnings to the general reserve?
   • Total equity rises by £200,000
   • Total equity is unchanged
   • Total equity falls by £200,000
   • Cash falls by £200,000
   Show answer

   Total equity is unchanged. The amount moves between two reserve columns; no cash moves and total equity stays the same.

7. In the statement of changes in equity, which column records a gain on revaluing land?
   • Retained earnings
   • Share premium
   • General reserve
   • Revaluation reserve
   Show answer

   Revaluation reserve. Revaluation gains are unrealised and are credited to the revaluation reserve.

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Sources

• Pearson Edexcel International Advanced Subsidiary/Advanced Level in Accounting specification (XAC11/YAC11), Issue 2
• Pearson Edexcel IAL Accounting WAC12 Unit 2 mark scheme, October 2024

Last updated 8 November 2026. Spotted a mistake? Tell us.