Statement of Changes in Equity

Exam code: 7707

Written by: Ashika|Reviewed by: Caroline Carroll|Updated 2 July 2026

A statement of changes in equity is a statement showing how the equity of a limited company has changed over a year
It shows the changes to:
- The ordinary share capital
- The non-redeemable preference share capital
- The retained earnings
- The general reserve
It shows how the profits are used
- Some of the profits will be distributed to the shareholders as dividends
- The remaining profits are carried forward to the next financial year as retained earnings
  - Some of the retained earnings might be transferred to the general reserve

The equity of the limited company is likely to change due to the following
- The profit for the year is added to the retained earnings
- The profit is distributed or paid to shareholders in the form of interim and final dividends
- Some of the profit for the year is transferred to the general reserve

Shareholders get a share or portion of the profits as dividends
The statement of changes in equity shows the dividends paid to shareholders during the year for any ordinary shares and non-redeemable preference shares
- Dividends that are paid halfway through the year are known as interim dividends
- Dividends that are paid at the end of the year are known as final dividends
Dividends proposed by the directors to be paid are not to be included in the statement of changes in equity until the amount is paid

No information about redeemable preference shares is stated on the statement of changes in equity
- They are a liability so they are included on the statement of financial position
- Payment of their dividends is a finance cost and is included on the income statement

Worked example

On 1 April 2023, P and Q Limited supplied the following information:

On 31 March 2024, P and Q Limited supplied the following information:

The profit from operations for the year ended 31 March 2024 was $90 000
Half of the preference share dividends were paid on 1 October 2023 and the rest were outstanding at 31 March 2024
There were no other finance costs apart from the preference share dividends
On 1 January 2024, an interim dividend of $32 000 was paid
On 31 March 2024, $12 000 was transferred from the retained earnings to the general reserve
On 31 March 2024, the directors proposed the payment of an ordinary share dividend of 10%

Prepare the statement of changes in equity for the year ended 31 March 2024 for P and Q Limited.

Answer:

Identify the key information given on 1 April 2023

In total, there were 800 000 ordinary shares of $0.75 each
- Calculate the ordinary share capital on 1 April 2023 by multiplying the number of shares by the price of a share

Ordinary share capital: 800 000 × $0.75 = $600 000

In total, there were 400 000 5% redeemable preference shares of $1 each
- Redeemable preference shares are liabilities so they do not appear on the statement of changes in equity
The balance of the general reserve was $62 000
- This is the opening balance on the statement of changes in equity
The retained earnings amounted to $55 000
- This is the opening balance on the statement of changes in equity

Identify the key information given on 31 March 2024.

The profit from operations for the year ended 31 March 2024 was $90 000
- This is before the finance costs are subtracted
Half of the preference share dividends were paid on 1 October 2023 and the rest were outstanding at 31 March 2024
- The full dividend is a finance cost for the year as it was owed that year
  - Regardless of how much of it was actually paid
- Calculate the dividends by multiplying the percentage by the number of shares and then multiply by the value of a share

5% × 400 000 × $1 = $20 000

There were no other finance costs apart from the preference share dividends
- Subtract the dividends for redeemable preference shares from the profit from operations
  - This will increase the retained earnings

Profit for the year: $90 000 - $20 000 = $70 000

On 1 January 2024, an interim dividend of $32 000 for the ordinary shares was paid
- This will decrease the retained earnings
  - The interim dividend was paid in the current year so it is entered on the statement of changes in equity
On 31 March 2024, $12 000 was transferred from the retained earnings to the general reserve
- This will decrease the retained earnings but increase the general reserve
On 31 March 2024, the directors proposed the payment of an ordinary share dividend of 10%
- Any proposed dividend at the end of the year that remains unpaid, should not be included on the statement of changes in equity
Complete the statement of changes in equity using the required format
- Remember to total up rows and columns
- Put brackets around values if they are to be subtracted.

P and Q Limited Statement of Changes in Equity for the year ended 31 March 2024
	Ordinary share capital $	General Reserve $	Retained Earnings $	Total $
On 1 April 2023	600 000	62 000	55 000	717 000
Profit for the year			70 000	70 000
Dividend paid			(32 000)	(32 000)
Transfer to general reserve		12 000	(12 000)
On 31 March 2024	600 000	74 000	81 000	755 000

Statements of changes in equity