Chapter 6:

Accounting for Equity

MAc, Phuong Dung Le
FINANCIAL ACCOUNTING 1

CHAPTER
1:
• OVERIEW OF FA1
CHAPTER
2:
• CASH AND RECEIVABLES
CHAPTER
3:
• INVENTORY
CHAPTER
4:
• LONG-TERM ASSETS
CHAPTER
5:
• LIABILTIES
CHAPTER
6:
• EQUITY
CHAPTER
7:
• INCOME STATEMENT
2
Learning objectives

• Definition and Classification

1.

• Source Documents
2.

• Account and rules

3.

• Practice several major transactions

4.

• Disclosure
5.

3
NỘI DUNG
6.1 Overview
6.2. Account and rules
6.2.1. Accounting for Owner’s capital
6.2.2 Accounting for Difference due to asset revaluation
6.2.3. Accounting for Other capital
6.2.4. Accounting for Treasury shares
6.2.5 Accounting for Retained Earnings
6.3. Disclosure

4
5
6.1 Overview
6.1.1 Definition

The residual interest in the assets of the entity

after deducting all its liabilities.

EQUITY = ASSETS – LIABILITIES

Equity is the equity value of the owner that the

enterprise does not commit to pay - this is the
difference between ....................... and
...........................
6
6.1 Overview
6.1.2 Classification
Account 411- Owner’s capital

Account 412 - Difference due to asset revaluation

Account 413- Exchange differences

Account 414- Development investment funds

Account 417 - Fund for support of arrangement of enterprises

Account 418- Other fund under owner’s equity

Account 419- Treasury shares

Account 421- Retained earnings

…
7
6.1 Overview
6.1.3 Internal control

✓ Check the implementation of capital increase procedures

in accordance with the regulations of the enterprise
✓ Develop and implement regulations on the management
and use of each type of fund - pay attention to the form of
capital ownership to develop regulations
✓ Organize the construction of initial recording, rotation
process, detailed and synthesized recording for arising
transactions

8
 6.2. Account and rules
6.2.1. Accounting for Owner’s capital

A - Owner’s capital shall include:

• Initially and additionally contributed capital of owners;
• Sum added from funds under owner’s equity, retain- earning
profits of the business;
• The capital component of the convertible bond (options of
conversion of bonds into shares);
• Non-refundable aids, other sums received allowed recording an
increase of owner’s capital by competent agencies.
- Enterprises shall only account for in account 411 - "owner’s capital" according to
the actual amount of capital contributed by owners, not record in accordance
with committed, receivable sum of owners.
- Enterprises must detailed account for owner’s capital according to each form
source of capital (such as contributed capital of owners, capital stock premium,
and other capital) and monitor detailed each organization, individual to
participate in contribution of capital.
9
6.2.1 Accounting for Owner’s capital
B- Source documents

1. The enterprise registration application form.

2. The company's charter.

3. The list of members.

4. Copies of Legal documents…

5. The Certificate of Investment Registration of foreign

investors as prescribed by the Law on Investment…

10
6.2.1 Accounting for Owner’s capital
C- Classification
• For joint-stock companies:
• Account 41111 - Common • Maybe have
shares with voting rights: credit balances or
records the total par value of debit balances
common shares with voting Account 4112-Share
rights; premium:
• Account 41112 - preference - The difference
shares: records the total par Account 4111- between the issue price
value of preference shares. Contributions from and the par value of
record in detail in 2 main groups: owners: record actual shares;
• classified and presented as owner’s capital invested by the
equity (at item 411a of the BS ); - The difference
owner according to between price of
• classified and presented as liabilities (at
item 342 of BS) companies’ regulations repurchasing of
of owners’ capital. treasury stocks and the
re-issue price of
treasury stocks (for
Account 4118- Other joint stock companies).
capital: record
Account 4113- Option
operating capital set
of bond conversion:
up additionally from
the result of business This account is only
activities or given as used in the side
gifts, presents, issuing convertible
financing and asset bonds, used to record
revaluation the structure of the
capital (stock options)
(if these items are
of convertible bonds at
allowed to record a
the time of reporting.
decrease or increase in
investment capital)

11
6.2.1 Accounting for Owner’s capital
D- Account:

411- Owner’s capital

XXX

XXX

12
 4111 111,112,152,153,211,…
1
131,138
421

414,441…

111,152… 4118 421

13
 6.2.1 Accounting for Owner’s capital
E- Practice several major transactions
EXP1- When actually receiving contribution capital of the owners:
Dr 111, 112 (if receiving capital contribution in cash)
Dr 121, 128, 228 (if receiving capital contribution in shares, bonds,
investments in other enterprises)
Dr 152, 155, 156 (if receiving capital contribution in inventory)
Dr 211, 213, 217, 241 (if receiving capital contribution in fixed assets, invested
real estate)
Dr 331, 338, 341 (if transferring loans, liabilities into contributed capital)
Dr 4112, 4118 (the difference between the values of assets, liabilities
transferred into capital lower than the value of capital counted as capital
contribution of owners)
Cr 4111- Contributions from owners
Cr 4112, 4118 (the difference between the values of assets, liabilities
transferred into capital higher than the value of capital counted as capital
contribution of owners).
14
 6.2.1 Accounting for Owner’s capital
E- Practice several major transactions

EXP 2: In case joint stock companies issue shares to mobilize

capital from shareholders
a) When receiving money for buying shares from shareholders with
price issued at face value of shares, record:
Dr 111, 112, ... (par value)
Cr 4111 - Contributions from owners (par value)
Joint-stock company shall record in detail par value of common shares
with voting rights on account 41111; The par value of preference
shares on account 41112

15
 6.2.1 Accounting for Owner’s capital
E- Practice several major transactions
EXP2- cont
b) When receiving money for buying shares from shareholders with
difference between the issue price and par value of shares,
record:
Dr 111.112 (issue price)
Dr 4112 - Share premium (issue price lower than par value)
Cr 4111 - Contributions from owners (par value)
Cr 4112 - Share premium (issue price higher than par value)
c) Costs directly related to the issuance of shares, record:
Dr 4112- Share premium
Cr 111, 112.

16
 6.2.1 Accounting for Owner’s capital
E- Practice several major transactions
EXP 3- Joint stock companies issue shares from source of owner’s equity
a) In case a joint stock company is entitled to issue additional shares from share
premium, accountants shall base on records, accounting records related, record:
Dr 4112- Share premium
Cr 4111- Contributions from owners
b) In case a joint stock company is entitled to issue additional shares from the
development investment funds, record:
Dr 414 - development investment funds
Cr 4111- Contributions from owners
Cr 4112 - Share premium (if any)
c) In case a joint stock company is entitled to issue additional shares from the
undistributed after tax profits (stock dividend), record:
Dr 421 - undistributed post-tax profits
Cr 4111- Contributions from owners;
Cr 4112 - Share premium (if any)
17
EXP 1
In the year 201X, the accounting department of Cici Joint
Stock Company has the following documents:
On April 18, 201x, issuing 1 million additional shares,
received credit note from the bank, par value: 10,000 VND/
share, with:
 a. Issuing price 18,000 VND/ share
 b. Issuing price: 9,000 VND/ share

18
EXP 1

19
6.2.2 Accounting for Difference due to asset revaluation

a. Definition: This account used for recording of differences due

to revaluation of existing assets and situation of settlement of
such differences at enterprises such as: fixed assets, property
investment. In some cases it is possible and necessary to
revaluate materials, equipment, tools, finished goods Inventory,
goods, unfinished goods Inventory, etc.
b. Differences due to asset revaluation shall be recorded in this
account in following cases:

When having the decision of State on asset revaluation;

- When carrying out the equitization of State enterprises;

- Other cases under provisions of the law.

20
6.2.2 Accounting for Difference due to asset revaluation

c. Account
412

- The negative difference due - The positive difference due to asset

to asset revaluation; revaluation;
- Settlement of the positive - Settlement of the negative
difference due to asset difference due to asset revaluation.
revaluation

Debit balance: Credit balance:

The negative difference due The positive difference due
to revaluating assets which upon revaluating assets which
has not yet settled has not yet settled
21
6.2.2 Accounting for Difference due to asset revaluation

412
152,153,156… 152,153,156…
The negative price the positive price

211,213 211,213
The negative price the positive price

214
214

411 411
Settlement of the positive Settlement of the negative
difference difference
22
6.2.2 Accounting for Difference due to asset revaluation
D- Practice several major transactions
When having the State’s decisions on revaluation of fixed-asset,
real estate Investment, materials, goods… or valuation when
conducting equalization of State enterprises, enterprises shall carry
out inventory, revaluate assets and record differences due to asset
evaluation in the accounting book.
EXP 1- Revaluation of materials, goods:
a) If revaluation price are higher than price recorded in the accounting
book, the positive price difference will be recorded:
Dr 152, 153, 155, 156
Cr 412 - Difference due to asset revaluation.
b) If revaluation price are lower than price recorded in the accounting
book, the negative price difference will be recorded:
Dr 412 - Difference due to asset revaluation.
Cr 152, 153, 155, 156.
23
6.2.2 Accounting for Difference due to asset revaluation
D- Practice several major transactions
EXP 2- Revaluation of fixed assets and real estate investment:
Based on the written summary of inventory and revaluation results of fixed
assets, real estate investment:
Historical cost, book value, depreciation value is adjusted as an increase, record:
Dr 211, 213, 217 (adjusted increase in cost)
Cr 214 - Depreciation of fixed asset (adjusted increase in depreciation
value)
Cr 412 - Difference due to asset revaluation. (adjusted increase in book
value)

Historical costs, book value, depreciation value is adjusted as a decrease, record:

Dr 412 - Difference due to asset revaluation. (adjusted decrease in book value)
Dr 214 - Depreciation of fixed asset (adjusted decrease in depreciation value)
Cr 211, 213, 217 (adjusted decrease in cost)

24
 EXP2- Difference due to asset revaluation
In the year 201X, Vivi Company reassessed asset as follows:
Asset Quantity Historical Revaluation Gap
cost Value
Material V 1.000 unit 100.000 110.000
Phân tích
Goods X nghiệp
2.700 kgvụ và định khoản.
80.000 75.000

25
 6.2.3 Other capital
 Based on the current financial policy of the company, the
company's charter and resolutions of the Shareholders'
Council
 With the purpose of helping businesses offset or limit losses
that may arise in the future or used for reinvestment, ...
 Included:
Development investment funds

Financial reserve funds

Other fund under owner’s equity

26
 6.2.3 Other capital
a. Development investment funds:
record existing amount, and the situation of increase and decrease
of development investment fund of enterprises.
set up from Profits after corporate income tax and used for
expansion investment of business and production scale, or for
intensive investment of enterprises.
Investment in business expansion and development

Innovating machinery and equipment

researching technical progress Renovate equipment and working conditions

Scientific research, training, professional qualification for staff ...

Investment in the development of another state-owned enterprise…

27
a. Accounting for Development investment funds

414
411 421
Addition capital temporarily
appropriate from
retained earnings
4111, 4112… 415…
Transfer Transfer

28
 6.2.3 Other capital
b. Fund for support of arrangement of enterprises
Record at one member limited liability companies of which 100%
charter capital is held by the State as prescribed by law.

Revenues of the Fund Expenditures of the Fund

• Revenues from equitization; Revenues
from forms of reorganization and
transformation of enterprises;
• Supportive budget under decision of
the competent authority;
• Interest on deposits in banks of the
Fund;
• Penalty for late payment;
• Other revenues under provisions of
the law.
29
• Support for enterprises in
reorganization and transformation of
ownership and settlement of policies for
redundant workers and handling of
financial matters in accordance with law;
• Supplement charter capital for units in
accordance with the law;
• Transfer, investments in enterprises
under the decision of the competent
authority;
• Other expenditures under provisions of
the law.
6.2.3 Other capital
b. Fund for support of arrangement of enterprises
417 1385
111,112, 138…
expenditure of equitization revenues for equitization

paid for employees

111,112,138
Fund's revenues under
decision of the competent
411 authority
approval of the Prime Minister
on supplementing charter
capital for Groups, state-
owned general companies, …

…… ……
30
 6.2.3 Other capital
c. Other fund under owner’s equity

Set up from Profits after corporate income tax and used for:

 Laudatory of the Board of Directors, administrative

Council
 Service the administration of the Board of Directors,
administrative Council

31
 6.2.3 Other capital
c. Other fund under owner’s equity

418 421
111,112

Laudotory Appropriating from

retained earnings
411 111,112
Addition capital (*)

(*) Received money: apply at one member limited liability companies

of which 100% charter capital is held by the State

32
 6.2.4 Treasury shares
a- Definition:

Treasury shares are shares issued by companies and bought-back

by the companies which issued shares, but they are not cancelled and
shall be re-issued in the period which complies with law on securities.
➢ Treasury shares are hold by companies which do not received
dividend, have no right for election or join to share assets when
companies are dissolved. When distributing dividend for shares,
Treasury shares hold by companies shall be considered as not yet sold.

➢ Value of Treasury shares is recorded in this account under to prices

actually bought-back, including back-buying prices and expenses
directly related to back-buying of shares, such as expenses of
transaction and information...

33
 6.2.4 Treasury shares
D- Practice several major transactions
Accounting for buying back shares which are issued by companies
themselves:
EXP1- When companies finished procedures for buying back
shares issued by companies themselves in accordance with law
provisions, accountants will implement the payment procedure for
shareholders, according to agreement prices for buying, selling and
receiving shares, record:
Dr 419 - Treasury shares (repurchase price of shares)
Cr 111, 112.
- During the process of buying back shares, when incurring
expenses directly related to buying-back of shares, record:
Dr 419 - Treasury shares
Cr 111, 112.
34
 6.2.4 Treasury shares
D- Practice several major transactions
EXP2- Re-issuing of Treasury shares:
- When re-issuing Treasury shares with price higher than actually
bought back price, record:
Dr 111, 112 (Total payment price of re-issuing shares)
Cr 419 - Treasury shares (repurchase real price of shares)
Cr 411 - Owner’s capital (4112) (differences from re-issued
price higher than real price for buying back of shares)

- When re-issuing Treasury shares to market with price lower than

real price for buying-back of shares, recorded:
Dr 111, 112 (Total payment price of re-issuing shares)
Dr 4112- - Share premium (re-issue price less than repurchase
price)
Cr 419 - Treasury shares (repurchase real price of shares).

35
 6.2.4 Treasury shares
D- Practice several major transactions

EXP3- When canceling treasury shares, record:

Dr 4111 – contributed capital of owners (Face value of cancelled
shares);
Dr 4112 - Share premium (re-purchase price higher than face value)
Cr 419 - Treasury shares (repurchase real price of shares).

36
6.2.5 Retained Earnings
This account is used to record business
results (profit, loss) after enterprise
income tax and situation of income
distribution or loss handling of enterprise.

37
 b. Profit distribution

Current Temporarily distributing profits to investors, shareholders

year Temporarily setting up of funds

Next the FS of the previous year is approved

year
Distribute profits to associated capital contributing parties ,
investors
Make up for prior-year losses of which the permitted period
of loss carry-forward for being deducted from pre-tax profits
expires in accordance with legal regulations.
setting up of funds

38
 b. Profit distribution
Current
Temporarily distributing profits to investors, shareholders
year

Temporarily setting up of funds

Next
year:

the FS of Distribute profits to associated capital contributing parties ,

the investors
previous
year is
approved
Make up for prior-year losses of which the permitted period
of loss carry-forward for being deducted from pre-tax profits
expires in accordance with legal regulations.

setting up of funds

39
 6.2.5 Retained Earnings
c. Account
421
- Loss amount on business activities of
- Real income amount on business
enterprises;
activities of enterprises in period;
- Appropriation of fund of enterprises;
- Loss amount from subordinates granted
- Distributing dividends, profits for additionally by seniors;
owners;
- Handling losses on business activities.
- Supplementing owner’s capital;

Loss amount on business Undistributed or unused

activities which have not undistributed
yet been settled

40
 At end of account period, transferring the result of
business activities:
421(2)
111,112,338… 911
(2a) Temporarily distributing (1a) In case of profit
profits to investors,
shareholders
414,418,353…

(2b) Temporarily setting up of

funds
911
(1b) In case of loss

41
 When the FS of the previous year is approved

421(1)
111,112,338…
Distributing dividends, profits for owners

414,418,353…
Set up additional enterprise funds

411
Supplementing owner’s capital

42
 6.2.5 Retained earnings
Practice several major transactions
EXP 1- At end of account period, transferring the result of
business activities:
- In case of profit, record:
Dr 911 – income summary
Cr 421 - retained earnings(4212).

- In case of loss, record:

Dr 421 - retained earnings (4212)
Cr 911 – income summary

43
6.2.5 Retained earnings
Practice several major transactions
EXP 2- When having the decision or notice for payment of dividend
and profits distributed to owners, record:
Dr 421 - Retained earnings
Cr 338 – Other payables (3388).
When paying dividends and profits, record:
Dr 338 – Other payables (3388).
Cr 111,112,... (real payment amount)
EXP3- In case a joint stock company pay dividends in shares
(additional stock issue from retained earnings), record:
Dr 421 - Retained earnings
Cr 4111- Contributions from owners (face value)
Cr 4112 - Share premium (differences between issue price higher
than face value, if any)
44
 6.2.5 Retained earnings
Practice several major transactions
EXP 4- Enterprises which are not joint stock companies when
deciding to supplement owner’s capital from business profits
(retained profits of enterprises), record:
Dr 421 - retained earnings
Cr 4111 - Contributions from owners.
EXP 5- When setting up funds from the results of operations
(retained profits of enterprises), record:
Dr 421 - retained earnings
Cr 414 - development investment funds
Cr 418 - Other funds under owner’s equity.
Cr 353 - bonus and welfare fund (3531, 3532, 3534).

45
 6.2.5 Retained earnings
Practice several major transactions
EXP 6- At fiscal year-beginning, transferring Retained earnings of
current year to Retained earnings of previous year, record:
- In case Account 4212 has Credit Balance (profit), record:
Dr 4212 - retained earnings of current year
Cr 4211– Retained earnings of current year of previous year.

- In case Account 4212 has Debit Balance (loss), record:

Dr 4211- Retained earnings of current year of previous year.
Cr 4212 - Retained earnings of current year

46
Case 6.1

47
 Name:…………………
Address:………………..

6.3 Disclosure

(Signature and (Signature and (Signature

full name) full name) and full name)
48
Notes of FS
Principle for recording owner’s equity:
 Contributions from owners are recorded at capital actually
contributed not;
 Method of recording the share premium, method of
determining options of convertible bonds
 The reason for recording the differences upon asset
revaluation and the exchange differences
 Method of determining undistributed profits, the principle of
distribution of profits, dividends.

49
Summary

50