If the company issues new shares, any premium collected will increase the APIC amount. However, that does not change the APIC values on the company books. Investors can sell the shares in the stock market at appreciated prices. Once it is recorded in the books, it does not change the value. The book value of the additional paid-in capital is recorded on the IPO day with the issue price. Special Considerations with Additional Paid-In Capital The total capital raised through the IPO is $ 15 million called total paid-in capital. The company will record $ 500,000 as share capital and $ 14.5 million as additional paid-in capital. We can calculate the additional paid-in capital as below.ĪPIC = (issue price – par value) × no. Hence, the total share capital raised through the IPO is $ 15 million. We assume all shares are fully subscribed by the investors. Suppose the issue price is $ 15 per share. On the IPO day, the issue price of the shares can be different as investors would be willing to pay a higher amount in anticipation of capital gains. Goes for an IPO and issues 1 million shares at a par value of $0.50. of shares (subscribed by investors) Working Example ![]() The premium received above the par value of the shares is called additional paid-in capital.Īdditional Paid-In Capital = (Issue Price – Par Value) × no. The number of shares multiplied by the par value refers to the share capital. It is the total number of shares subscribed (purchased) by the investors multiplied by the market value. The total paid-in or contributed capital is the capital raised through an IPO. How to Calculate the Additional Paid-In Capital? Together these two items make up the total paid-in or contributed capital of the company. The corresponding entries to the collected cash are adjusted against the common stock (share capital) and the additional paid-in capital. All cash proceeds are entered into the cash account on the balance sheet. It is recorded under the equity section of the balance sheet. Any difference in the par value of the shares and the price paid by the investors is referred to as additional paid-in capital. However, on IPO day the investors are willing to pay much higher prices. The par value is often set at $1.0 or even a fraction of a dollar. Stocks are issued at a low nominal value to avoid any legal complications by companies. It can be eliminated or reduced by retiring stocks permanently. It can only be received at the time of IPO, direct listing, or rights issue. It is received by a company when it issues common or preferred shares. The premium paid above the face values of the newly issued shares is called the share premium or additional paid-in capital. Additional paid-in capital is shown in the Shareholders' Equity section of the balance sheet.Additional paid-in capital (APIC) or capital surplus is the money investors pay above the par value of shares. For example, if 1,000 shares of $10 par value common stock are issued by a corporation at a price of $12 per share, the additional paid-in capital is $2,000 (1,000 shares × $2).Excess received from shareholders over the par value (or stated value) of the stock issued also called contributed capital in excess of par.B = Additional paid-in capital (a.k.a.A = Share capital/Capital stock ( Common stock plus Preferred stock). ![]() One should be aware of the use of the term and the abbreviation, which can confuse. For example, it could refer to the money that a company gets from potential investors, in addition to the stated (nominal or par) value of the stock, which coincides with the definition of additional paid-in capital, or paid-in capital in excess of par. However, the term has different definitions in different contexts. Instead, it shows the aggregate amount of capital contributed by all investors. The paid-in capital account does not reflect the amount of capital contributed by any specific investor. It includes share capital (capital stock) as well as additional paid-in capital. Paid-in capital (also paid-up capital and contributed capital) is capital that is contributed to a corporation by investors by purchase of stock from the corporation, the primary market, not by purchase of stock in the open market from other stockholders (the secondary market).
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