Investor's wiki

Contributed Surplus

Contributed Surplus

The contributed surplus is the amount of capital from the issuance of shares over the par value. Otherwise called additional paid-in capital, the surplus is kept in shareholders' equity on the balance sheet.

Breaking Down Contributed Surplus

Initially, a share issuance of common shares will be allocated into two containers — one for common stock, the other for extra paid-in capital or contributed surplus. For instance, ABC Inc. issues 100,000 $1 par value common shares at $15 per share. The company gets $1.5 million (100,000 shares x $15), $100,000 (100,000 shares x $1) of which is allocated to common stock and the balance of $1.4 million ((100,000 x ($15-$1)) to contributed surplus. Subsequent share issuances, repurchases, share-based compensation, and related tax effects are kept in the contributed surplus account. These changes are accounted for on a company's consolidated statement of equity. The balance toward the finish of a period shows up as "common stock and extra paid-in capital" (or by a substantially comparative name) on the balance sheet.

Illustration of Contributed Surplus

Cisco Systems, Inc. had around $45.3 billion of common stock and extra paid-in capital as of the of its fiscal year 2017. The company began the fiscal year with a balance of $44.5 billion as seen on the consolidated statement of equity. During the fiscal year, 2017 Cisco issued $708 million of common stock, repurchased $1.05 billion of common stock, repurchased $619 million worth of shares for tax withholdings on vesting of restricted stock units, paid $1.54 billion in share-based compensation and issued $168 million in stock for acquisitions.

Note: The other major part of Shareholders' Equity is retained earnings. Retained earnings is comprehensively defined as net income less dividends paid if any. The contributed surplus is now and again misinterpreted as an account where "surplus" money (i.e., revenue in excess of all expenses) sits. It is the "contributed" part of the term that will be associated with investments by shareholders.