| Investment Dictionary: Capital Surplus |
Equity which cannot otherwise be classified as capital stock or retained earnings. It's usually created from a stock issued at a premium over par value.
Investopedia Says:
Capital surplus is also known as share premium (UK), acquired surplus, donated surplus, paid-in surplus, or additional paid-in capital.
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| Financial & Investment Dictionary: Capital Surplus |
1. Equity-or Net Worth-not otherwise classifiable as Capital Stock or Retained Earnings. Here are five ways of creating surplus:
a. From stock issued at a premium over par or stated value.
b. From the proceeds of stock bought back and then sold again.
c. From a reduction of par or stated value or a reclassification of capital stock.
d. From donated stock.
e. From the acquisition of companies that have capital surplus.
2. common umbrella term for more specific classifications such as Acquired Surplus, Additional Paid-in Capital, Donated Surplus and Reevaluation Surplus (arising from appraisals). Most common synonyms: paid-in surplus; surplus.
| Wikipedia: Capital surplus |
Capital surplus is an accounting term which frequently appears as a balance sheet item as a component of shareholders' equity. Capital surplus is used to account for any funds the issuing firm has received over and above the par value of the common stock. It may also be used to account for any gains the firm may derive from selling treasury stock, although this is less commonly seen.
Taken together, common stock issued and paid plus capital surplus represent the total amount actually paid by investors for shares when issued (assuming no subsequent adjustments or changes).
Shares for which there is no par value will generally not have any form of capital surplus on the balance sheet; all funds from issuing shares will be credited to common stock issued.
Some other scenarios of causing Capital Surplus include Government donate a piece of land to the company.
Capital Surplus is also a term used by economists to denote capital inflows in excess of capital outflows on a country's balance of payments.
Many firms issue shares with some nominal par value, often the smallest unit of currency commonly in use (such as one penny or $0.01), in many jurisdictions due to legal requirements. The firm may then sell these shares for a much higher price (as the par value is a largely archaic and fictional concept).
Any premium received over the par value is credited to capital surplus.
A firm is established and created with 100 shares with a par value of $0.01. These shares are bought by investors for $1 each.
The firm's balance sheet at this point consists of only three items:
Assets:
Liabilities:
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 | Surplus (finance term) |
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| Balance Sheet (insurance term) |
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 | Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved. Read more |
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| Financial & Investment Dictionary. Dictionary of Finance and Investment Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved. Read more |
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| Wikipedia. This article is licensed under the Creative Commons Attribution/Share-Alike License. It uses material from the Wikipedia article "Capital surplus". Read more |
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