Posted in Finance, Accounting and Economics Terms, Total Reads: 221
Definition: Contributed Surplus
It is the profit earned by a company that is not through its usual business activities. It is not earned from the operational activities. It is separated from the profit so that investors would have a better idea of the company’s non-operational income. If this was combined with the operational income then the firm would not able to forecast or predict this accurately. This a balance sheet item representing the capital accumulated from sources other than earnings from operational activities such as donation of land to the company by the government of sale of new stock to investors to increase liquidity of the firm’s stock.
When a company issues shares that are above its par value (stated value of the shares), the profit they earn is called surplus. It is accounted under shareholder’s equity section of the balance sheet. The total amount paid by investors if the par value plus the surplus for the issued shares. When the shares are issued at par they have no capital surplus and this amount is accounted to common stock issued.
Contributed surplus = total Assets – Total Liabilities – Par value of stock issued – Retained Earnings