12 Quarter 1 – Module 4: Statement of Changes in Equity SELF-LEARNING MODULE DIVISION OF GENERAL SANTOS CITY Week 4| Day 21 to Day 25 Fundamentals of Accountancy Business & Management 2 Subject Area – Fundamentals of Accountancy Business & Management Self-Learning Module (SLM) Quarter 1 – Module 4: Title: Statement of Changes in Equity First Edition, 2020 Republic Act 8293, section 176 states that: No copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the government agency or office wherein the work is created shall be necessary for exploitation of such work for profit. Such agency or office may, among other things, impose as a condition the payment of royalties. Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand names, trademarks, etc.) included in this module are owned by their respective copyright holders. Every effort has been exerted to locate and seek permission to use these materials from their respective copyright owners. The publisher and authors do not represent nor claim ownership over them. Development Team of the Module Writers: MA. ROWENA R. MANANSALA Editors: Reviewers: Dr. Luzviminda Loreno Illustrator: Hannah Alessandra R. Manansala Layout Artist: Cover Art Designer: Reggie D. Galindez Management Team: Romelito G. Flores, CESO V – Schools Division Superintendent Mario M. Bermudez, CESO VI – Asst. Schools Division Superintendent Juliet F. Lastimosa, CID Chief Sally A. Palomo, EPS - LRMS Gregorio O. Ruales, EPS – ADM Coordinator Luzviminda Loreno – Division Senior High School Coordinator/EsP Printed in the Philippines by Department of Education – General Santos City Office Address: Telefax: E-mail Address: Tiongson St., Lagao, General Santos City (083) 552-8909 depedgensan@deped.gov.ph 12 Quarter 1 – Module 4: Statement of Changes in Equity SELF-LEARNING MODULE DIVISION OF GENERAL SANTOS CITY Week 4 | Day 21 to Day 25 Fundamentals of Accountancy Business & Management Introductory Message For the facilitator: Welcome to the Fundamentals of Accountancy, Business & Management 2 Grade 12, Self-Learning Module (SLM) on Statement of Changes in Equity (SCE) ! This module was collaboratively designed, developed and reviewed by educators both from public and private institutions to assist you, the teacher or facilitator in helping the learners meet the standards set by the K to 12 Curriculum while overcoming their personal, social, and economic constraints in schooling. This learning resource hopes to engage the learners into guided and independent learning activities at their own pace and time. Furthermore, this also aims to help learners acquire the needed 21st century skills while taking into consideration their needs and circumstances. In addition to the material in the main text, you will also see this box in the body of the module: Notes to the Teacher This contains helpful tips or strategies that will help you in guiding the learners. As a facilitator you are expected to orient the learners on how to use this module. You also need to keep track of the learners' progress while allowing them to manage their own learning. Furthermore, you are expected to encourage and assist the learners as they do the tasks included in the module. 2 For the learner: Welcome to the Fundamentals of Accountancy, Business & Management 2 Grade Level 12 Self-Learning Module (SLM) on Statement of Changes in Equity ! (SCE). This is the 3rd module following the modules on the Statement of Financial Position (SFP) and Statement of Comprehensive Income (SCI). The hand is one of the most symbolized part of the human body. It is often used to depict skill, action and purpose. Through our hands we may learn, create and accomplish. Hence, the hand in this learning resource signifies that you as a learner is capable and empowered to successfully achieve the relevant competencies and skills at your own pace and time. Your academic success lies in your own hands! This module was designed to provide you with fun and meaningful opportunities for guided and independent learning at your own pace and time. You will be enabled to process the contents of the learning resource while being an active learner. This module has the following parts and corresponding icons: What I Need to Know This will give you an idea of the skills or competencies you are expected to learn in the module. What I Know This part includes an activity that aims to check what you already know about the lesson to take. If you get all the answers correct (100%), you may decide to skip this module. What’s In This is a brief drill or review to help you link the current lesson with the previous one. What’s New In this portion, the new lesson will be introduced to you in various ways such as a story, a song, a poem, a problem opener, an activity or a situation. What is It This section provides a brief discussion of the lesson. This aims to help you discover and understand new concepts and skills. What’s More This comprises activities for independent practice to solidify your understanding and skills of the topic. You may check the answers to the exercises using the Answer Key at the end of the module. What I Have Learned This includes questions or blank sentence/paragraph to be filled in to process what you learned from the lesson. 3 What I Can Do This section provides an activity which will help you transfer your new knowledge or skill into real life situations or concerns. Assessment This is a task which aims to evaluate your level of mastery in achieving the learning competency. Additional Activities In this portion, another activity will be given to you to enrich your knowledge or skill of the lesson learned. This also tends retention of learned concepts. Answer Key This contains answers to all activities in the module. At the end of this module you will also find: References This is a list of all sources used in developing this module. The following are some reminders in using this module: 1. Use the module with care. Do not put unnecessary mark/s on any part of the module. Use a separate sheet of paper in answering the exercises. 2. Don’t forget to answer What I Know before moving on to the other activities included in the module. 3. Read the instruction carefully before doing each task. 4. Observe honesty and integrity in doing the tasks and checking your answers. 5. Finish the task at hand before proceeding to the next. 6. Return this module to your teacher/facilitator once you are through with it. If you encounter any difficulty in answering the tasks in this module, do not hesitate to consult your teacher or facilitator. Always bear in mind that you are not alone. We hope that through this material, you will experience meaningful learning and gain deep understanding of the relevant competencies. You can do it! 4 What I Need to Know This module was designed and written with you in mind. It is here to help you master the Statement of Changes in Equity (SCE). The scope of this module permits it to be used in many different learning situations. The language used recognizes the diverse vocabulary level of students. The lessons are arranged to follow the standard sequence of the course, Fundamentals of Accountancy, Business and Management 2 (FABM 2) in preparing a Statement of Changes in Equity (SCE) for a single proprietorship (ABM_FABM12-Ie9). But the order in which you read them can be changed to correspond with the textbook you are now using. The module is divided into two lessons, namely: • • Lesson 1 – The Forms of Business Organization Lesson 2 – Statement of Changes in Equity After going through this module, you are expected to: Prepare a Statement of Statement of Changes in Equity for a single proprietorship. 5 What I Know In accounting the financial statements are the means to communicate the well being of the company to its stakeholders, right? That is why we take to heart the preparation of a Financial Statement. Now its time we explore the forms of business organizations and the Statement of Changes in Equity (SCE) . But first, let’s check what you know of these topics ok? Choose the answer from the choices given & write it on the blank provided for. Instruction: Choose the letter of your choice and write it on the blank. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. ___________Which form of business organization puts the least risk on its owners? a. single proprietorship b. corporation c.partnership d. assets ___________Which form of business organization is owned by only one person? a. single proprietorship b. corporation c.partnership d. institution ___________Which business is formed by two or more persons contributing money, or property, or industry? a. single proprietorship b. corporation c.partnership d.cooperative ___________Which financial statement focus on equity? a. Statement of Fin. Condition b. Statement of Comp. Income c. Statement of Changes in Equity d. Cash Flow ___________ Which element in the Statement of Changes in Equity (SCE) increases in owner’s equity without the need for additional investment? a. Drawings b. Income c. Beginning Capital d. losses ___________ What decreases owner’s equity due to poor business operation? a.Drawings b. Income c. Beginning Capital d. losses ___________ Which SCE is used by a corporation? a. Statement of Changes in Equity (SCE) Single Proprietorship b. SCE in Partnership c. SCE in Corporation d. Cash flow ___________ What decreases owner’s equity apart from net effect of revenues and expenses? a. Drawings b. Income c. Beginning Capital d. losses ___________ What type of SCE is prepared for for a single proprietorship? a. Statement of Changes in Equity Single Proprietorship b. SCE in Partnership c. SCE in Corporation d. Cash flow ___________ Which advantage in the single proprietorship allows it to be the choice of many businesses except. a. Easy to put up b. freedom of management c. small capital d. large capitalization ___________ Which disadvantage in the partnership that causes it risky for investment? a.income b. camaraderie c. unlimited liability d. large investment ___________ What advantage of a corporation addresses risk of investment? a. Liability is up to investment only b. limited cash inflows c. large capital d. portability of capital ___________ What is the advantage of a corporation that makes it the choice of many businesses except? a. Limited risk b. legal personality c.easy to raise capital d. limited life ___________ What is the difference between SCE of partnership and single proprietorship in terms of net income? a. beg investment b. income c. division of income d.drawing method ___________ How does a corporation distribute its income? a. Cash flow b. dividend c. Retained earnings d. shares 6 Lesson 4a Forms of Business Organization What’s In ? Looking back, the previous 2 modules, introduced two (2) major Financial Statements, the Statement of Financial Position and the Statement of Comprehensive Income. In this module we will explore the third financial statement, the Statement of Changes in Equity. But first, a swift look back. Quick Check Instruction: Classify the account titles based on choices from a-d. Write the letter of the correct answer in the space provided for. For items 1-5 identify which financial statement do the following account titles belong to: a. Balance Sheet b. Income Statement c. cash flow d. Both a & b 1. ___ Prepaid Expense 2. ___ Accrued Rent Payable 3. ___ Insurance Expense 4. ___ Sales Returns & Allowance 5. ___ Purchases For items 6-10 identify which type of expense they belong. a. Cost of goods sold c. General & Administrative Expenses b. Selling/Marketing Expenses d. Other Expenses 6. ___ Purchases 7. ___ Freight in 8. ___ Freight out 9. ___ Salesmen’s Commission 10. ___ Interest Expenses Well done you remembered well ! What’s New ? As a student of business most of us are fascinated at how huge and successful some companies have grown to be. While, we are aware at the risks involved, we are also excited of the opportunities available. Are you interested to go into business? 7 Read the case and answer the given questions on the space provided: Activity 1: Buko Pie Queen Kristel, a grade 11 student is interested to go online selling business. Why not? She has a good product, buko pie. Initially, she found success with her buko pie around her neighborhood in Purok Malakas. Selling her pies at P150.00 pesos each, she is grossing at P3,000 daily sales (20 pcs) earning a tidy profit of 800.00 per day in the 1st month, with her P5,000 initial capital. To increase her sales, she registered with Food Panda. As demand rose, she bought a bigger oven with bigger capacity on credit at Php120,000.00 with a monthly payment of P24,000.00 for six months. Sales rose to P4,500 per day on the first week, but as Extended community quarantine was lifted to make way for Gen Community Quarantine sales fell to P3,000.00 daily. She found she could hardly make her monthly payment. With her limited capitalization, she feels helpless. A close friend, Allan offered to invest in her business with P100,000 for a 50-50 stake as a partner. Should she accept? 1. Are problems to be expected in a business? Should she give up? __________________________________________________________________ 2. What is the form of business organization of Kristel’s business? Did it contribute to its difficulties? ______________________________ __________________________________________________________________ 3. Should she say yes to Allan’s offer? _____________________________ _________________________________________________________________ 4. Are there disadvantages in having a business partner? __________ _________________________________________________________________ 5. What is the ideal form of business organization for her? Why? What is It __________________________________________________________________ The concept of business organization Business has its joys and pains. When opportunities are available, risks go with it as well. In the case of Kristel, she bears the burden of costly decisions alone, as a sole proprietor. The personal assets of the owner not devoted to the business is put at risk when the owner makes a bad decision of getting into debt that the business is unable to pay. But there are good reasons for going solo too, like freedom to manage it as you like it. Decisions are easier to make so opportunities are easily addressed. Will Kristel accept the proposal of Allan? It 8 will increase the capital of her business, thus help in terms of resources and manpower she desperately needs, but is she willing to give up the profits she is The Business Organization A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. The term business also refers to the organized efforts and activities of individuals to produce and sell goods and services for profit.The organization is the structure that holds the business entity together. The 3 Forms of Business Organization Basically there are three (3) major forms of business organizations. All other forms of business are similar in some respects to these three basic forms: a. SINGLE/SOLE PROPRIETORSHIP –A form of business whose assets, liabilities, income and expenses are owned by only one person (Price, Haddock & Brock, 2012). Advantages of the Sole Proprietorship 1. Owners can establish a sole proprietorship instantly, easily, and inexpensively. 2. Sole proprietorship carry little, if any, ongoing formalities. 3. A sole proprietor need not pay unemployment tax on himself or herself (although he or she must pay unemployment tax on employees). 4. Owners may freely mix business and personal assets Disadvantages of the Sole Proprietorship 1. Owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business. 2. Owners cannot raise capital by selling an interest in the business. 9 rarely survive the death or incapacity 3. Sole proprietorship of their owners and so do not retain value. 5. Partnerships often do not have to pay minimum taxes that are required of corporations. Disadvantages of the Partnership 1. All owners are subject to unlimited personal liability for the debts, losses, and liabilities of the business (except in the cases of limited partnerships and limited liability partnerships). 2. Individual partners bear responsibility for the actions of other partners. 3. Poorly organized partnerships and oral partnerships can lead to disputes among owners. NO …..ITS NOT IN THE SIZE OF THE Corporate Headquarters DREAM, its in how determined you are! c. CORPORATION – is a form of business organization whose assets, liabilities, income and expenses are owned by itself being a legally separate entity from its owners. As a legal entity, it can sue or be sued as well as own properties and transact business. Owners are called shareholders or stockholders of the company (Haddock, Price, & Farina, 2012). 10 Advantages of the Corporation 1. Owners are protected from personal liability for company debts and obligations. 2. Corporations have a reliable body of legal precedent to guide owners and managers. 3. Corporations are the best vehicle for eventual public companies. 4. Corporations can more easily raise capital through the sale of securities. 5. Corporations can easily transfer ownership through the transfer of securities. 6. Corporations can have an unlimited life. 7. Corporations can create tax benefits under certain circumstances, but note that C corporations may be subject to "double taxation" on profits. Disadvantages of the Corporation 1. Corporations require annual meetings and require owners and directors to observe certain formalities. 2. Corporations are more expensive to set up than partnerships or sole proprietorship. 3. Corporations require annual fees and periodic filings with the state. 11 What’s More Let’s try this! Suggest a business for each type of organization & tell us why. Write your answer in the box provided. Activity 2 : Make your own business TYPE OF BUSINESS activity ORGANIZATION PROPOSED BUSINESS YOUR REASON WHY Single Proprietorship Partnership Corporation What I Have Learned 1. 2. 3. 4. 5. 6. 7. Businesses are basically of three three types, Single proprietorship, Partnership, and Corporation. The Single proprietorship is easy to create, but is usually limited in capitalization, and all risk is borne by the single proprietorship. Partnership is created by contract among members. A common fund is created in partnership where one partner may contribute, money, property or industry. In partnership all partners can be bound by the action of others. The corporation has a juridical personality, and can enter into transaction like an ordinary person. Because of the divisibility of capitalization, corporations can harness big capital , hence engage in bigger businesses, and has opportunity for bigger growth. 12 What I Can Do QUICK CHECK Now, let us apply what we know: A. Instruction: Write the answer in the space provided for. Name the ideal form of business organization suited to the investment goals of the owner for the following: ______________________ 1. For small businesses like kakanin delivery, that are easy to start and require small capital, although unfortunately produce limited profit. ______________________ 2. The type of business that provide expertise to clients like auditing firms, law firms. ______________________ 3. Businesses in growing industry but requires large capitalization like canning, mall, factory. ______________________ 4. Business you want to invest in but you have no time to get involved in its day to day operations. And most importantly, you don’t want to risk your personal assets. ______________________ 5. Business that you want absolute control, and no meddling from others. 1. Single proprietorship 2.Partnership 3. corporation 4. corporation 5. corporation Did you get it? Go over the topics and put a (/) to describe your understanding of the topic. Forms of Business Organizations Yup, I understood it well Nope,I did not understand at all Sole Proprietorship Partnership Corporation Assessment 13 Hmmm Yes, but I have questions Lesson 4b Statement of Changes in Equity What I Know Now that you have learned about the 3 basic types of business you are now ready for the Statement of Changes in Equity. Let’s do this guys! Activity 3 : What is my Equity? So what’s Equity again? Do you want to know how much is your family equity? Yes dude, you have a family equity and its so simple to do. Remember your accounting equation? Let’s put it to use: The Accounting Equation for Capital or equity is C= A-L where C is for capital, A is for asset, and L is for liabilities. What to do: Okay, ! Got it ! 1. List down the assets or properties of your family. (Everything of financial value that the business or your family owns, such as money, appliances etc..) 2. Now total the value of all your assets or properties to get your Total Assets 3. Next,list down then total all debts of your family or liabilities or “utang” to get your Total Liabilities 4. From the Total Assets minus or deduct the amount of Total Liabilities. Yup you’re through, duh! That easy! The answer is your household’s ownership, or your owner’s equity. In business, owners will try to grow and watch over this part of the business. How about you? Can you help improve your family equity? List your plans to improve your family equity? ________________________________________________________ ________________________________________________________ 14 So what is Statement of Changes In Equity (SCE) ? Statement of Changes in Equity. Is a Financial Statement that presents/shows all changes, to the owner’s capitalization whether increases or decreases during the period reported. It is prepared prior to preparation of the Statement of Financial Position(SFP) to be able to obtain the ending balance of the equity to be used in the SFP. (Haddock, et al., 2012). Elements of a Statement of Changes in Equity: a. Initial Investment – The very first investment of the owner to the company in order to start the business operations. Investments can be made in the form of cash, or other assets whether current assets like merchandise inventory or any non current assets like land, or building. b. Additional Investment – Increases to owner’s equity by adding the newer investments made by the owner to the business. c. Distribution of Income – The income of the single proprietorship is within the discretion of the owner, which he may or may not get from the business. If he does, he may just use it through the Owner’s Drawing. In a partnership, partners have agreements on how income or loss is divided among themselves. Dividends is the means the corporation distributes the income to the shareholders based on the shares that they have (percentage of ownership of the company). This reduces the cash of the company, hence is a deduction from stockholders’ equity . d. Net Income/Loss - The result of operations of the business could either be an income or a loss. The income is added while the loss is a deduction of the equity. 15 e. Drawings - Personal use of the assets of the business such as cash is also a deduction to the capital of the owner of the business. llustrative Sample of a Statement of Changes in Equity : Davao Central Convenience Store Statement of Changes in Equity For the year ended December 31, 2016 Mr. Davao Capital as of January 1, 2016 Php 75,000.00 Add: Additional Investment in Ownership Php 25,000.00 Net Income for the year 2016 150,000.00 Total 175,000.00 250,000.00 Less: Mr. Davao Withdrawals 150,000.00 Mr. Davao Capital as of December 31, 2016 Php 100,000.00 1. Parts of the Statement of Changes in Equity: Heading i. Name of the Company ii. Name of the Statement iii. Date of preparation (emphasis on the wording – “for the”) a. Initial Investment b. Increases to Equity i. Additional Investment ii. Net Income c.Decreases to Equity i. Net loss for the year ii. Withdrawals by the owner Variations in the Statement of Changes in Owner’s Equity: BusOrganization Ownership Statement of Changes in Equity Single Proprietorship Sole Proprietor Partnership Partners Statement of Changes in Partners’ Equity Corporation Shareholder Statement of Changes in Shareholders Equity 16 Statement of Changes in Owner’s Equity a. Statement of Changes in Owner’s Equity This statement reflects the movement and changes of the capital of the single proprietor in the year of operation. b. The Statement of Changes in Partners’ Equity Movements or changes in the capitalization/equity of the partners are shown in this statement. The differences between the Statement of Changes in Owners Equity against Statement of Changes in Partner’s Equity are as follows: a. Title – instead of owner’s, partners’ is used to denote that this is a partnership b. There are two or more owners in a partnership thus, the changes in the capital account of each partner is presented c. The net income is divided between partners (not always equal. It could be based on the agreement among partners. Example: 50:50 or 40:60, etc.) c. Statement of Changes in Shareholders Equity is used in a corporation to show the flow of changes in its equity. The differences between the two are as follows: 1. Title – instead of owner’s, shareholders’ is used to denote that this is a corporation 2. There are an unlimited number of shareholders but unlike the partnership, the names of the shareholders are not indicated here. Instead, the corporation keeps an official list with the corporate secretary 3. The capital account is called share capital (just like owner’s being shareholders) 4. Instead of additional investment, share issuances (happens when shares are sold to shareholders) increases the share capital of a corporation 5. Instead of withdrawals, distribution of net income to shareholders decreases the Capital of the corporation. 17 What’s More QUICK CHECK Identify which element of Statement of Changes in Equity is described. Choose the letter corresponding to the right answer. a.Drawings b.dividend c.income d. loss e. Additional investment f. debt ______________________ 1. Distribution of income in a corporation ______________________ 2. Result of business operations could either be a ___ or ___. ______________________ 3. ______________________ 4. It increases the equity as a new investment ______________________ 5. Personal use of the assets of the business by the owner Identify the effects of these transactions to the Equity a. Increases the equity b. decreases the equity c. no effect to equity d. not part of equity e. Liability ______________________ 6. Loss ______________________ 7. Profit ______________________ 8. Dividends are distributed to shareholders ______________________9. Land and building was invested in the first quarter by the owner. ______________________10. New equipment worth P5,000,000 was bought for the business through a bank loan. Answers 1.a 2. c, or, 3.d 4. e. 5.a 6. b 7. a 8. b 9.a. 10. c Sample problem Owner, Neil Dipagan invested an initial capital amounting to P50,000 in order to put up his Musical Instruments company. During the first year of operations (2016), the company had a loss of P25,000. Because of this, Neil invested additional capital amounting to P50,000 in 2017. In the second year (2017), the company had a net income of P100,000 and Neil withdrew P10,000 for personal use. Compute for the ending capital balance of Neil for the year 2017. Answer: P165,000 (Topic: Ending Balance in the Statement of Changes in Instruction: Prepare a Statement of Changes in Equity for Neil Dipagan in December 31, 2017. 18 Okay so it looks like this (Solution) MUSICAL INSTRUMENTS COMPANY Statement of Changes in Owner’s Equity For the year ended December 31, 2016 Step 1. Make the Heading Step 2. Find the Beginning Balance Step Capital 1. Make A Neil Dipagan Capital as of January 1, 2017 Php 25,000.00 Heading Step 3. Find the Additional Investments & Net Income Add: Additional Investment in 2017 Net Income for the year 2017 Step 6 Ending Capital 100,000.00 Total Step 4. Add All 2&3 Step 5 Minus /deduct owners drawings Php 50,000.00 175,000.00 Less: Neil Dipagan Withdrawals Mr. Davao Capital as of December 31, 2016 150,000.00 10,000.00 Php 165,000.00 balance *Where did Neil Dipagan January 1capital come from? ( Solution: Beginning Capital Balance 2016 Php 50,000.00-loss 2016 25,000=P25,000.00) What I Have Learned Now what does the Statement of Changes in Equity Show? ⚫ The statement of changes in equity of a single proprietor presents the user with information on how much is the beginning capital of the owner at the start of operations in the fiscal year. It also shows much new investments were added, and how much income was earned and added as well. It also presents the reductions from capital due to withdrawals of owners and when business operations sustain losses. ⚫ A statement of changes in equity reflects all changes in the capitalization of the owners of the business between the beginning and the end of the reporting period. ⚫ The changes or movement resulted from transactions with owners in their capacity as owners (ie owner changes in equity) reflecting the increase or decrease in net assets in the period. ⚫ This statement provides a linkage between the statement of financial position and statement of comprehensive income of the business. 19 What I Can Do Dude, you are now ready to apply your new found knowledge to good use. In each of the instances choose which type of business organization suits the investment goals of the owner. Let’s do this! Instruction: Write the answer in the space provided for A. Name the ideal form of business organization suited to the investment goals of the owner. Write your choice in the blank provided for. Example b. Partnerhip a. Single Proprietorship, b.Partnership, c.Corporation ______________________ 1. Small businesses that are easy to start and require small capital, although unfortunately produce limited profit. ______________________ 2. The type of business that provide expertise to clients like auditing firms, law firms. ______________________ 3. Businesses in growing industry but requires large capitalization. ______________________ 4. Business you want to invest in but you have no time to get involved in its day to day operations. And most importantly, you don’t want to risk your personal assets. ______________________5. Business that you want absolute control, and no meddling from others. B. True or False (Write true if sentence is correct, otherwise, write false). ______________________ 6. All SCEs for all forms of businesses are alike because they all show equity. ______________________ 7. The amount of withdrawal made by a single proprietor is limited only to his investment. ______________________ 8. Giving away dividends to shareholders decrease the capital of a corporation if it is in the form of assets. ______________________ 9. Personal use of cash of the business by the owners is already withdrawal of capital. ______________________ 10. In a partnership a partner can contribute his expertise and industry to the common fund. 20 C. Identify the effects of these transactions to the Equity a.Increases the equity b. decreases the equity c. no effect to equity 11. ___________________ Income of the business. 12.___________________ Use of cash by the owner to buy equipment for the business 13.___________________ The owner receives dividend from his personal assets 14.____________________Land and building was initial investment by the owner. 15.____________________New equipment worth P5,000,000 was bought for the business through a bank loan. D. Problem Solving: Owner, Desiree Socorro is content, her capital has already reached Php 50,000,000 at the beginning of January 2020 in a store named Fitmat. To welcome the new year the store treated their staff to cash bonuses and a big party. In February 14, 2020 the owner added P25,000,000.00 personal investment to Fitmat to fund the expansion of the business. However, towards the end of March Covid 19 struck. The country was put into quarantine. Business closed. To date, her losses is running at P9,000,000.00. Short of cash, she withdrew P1,000,000 for personal use. Her family want to know how is Fitmat? She asks your help in preparing a Statement of Changes in Equity. Answer: P165,000 (Tc: Ending Balance in the Statement of Changes Instruction: Prepare a Statement of Changes in Equity for Fitmat in 2017. 21 Assessment Well, you have already accomplished a much. Its time you try to test your knowledge and skills on the topics we have discussed. Instruction: Choose the letter of your choice and write it on the blank. 1. ___________Which form of business organization puts the least risk on its owners? a. single proprietorship b. corporation c.partnership d. assets 2. ___________Which form of business organization is owned by only one person? a. single proprietorship b. corporation c.partnership d. institution 3.___________Which business is formed by two or more persons contributing money, or property, or industry? a. single proprieorship b. corporation c.partnership d.cooperative 4.___________Which financial statementt focus on equity? b. Statement of Fin. Condition b. Statement of Comp. Income c. Statement of Changes in Equity d. Cash Flow 5. ___________ Which element in the Statement of Changes in Equity (SCE) increases in owner’s equity without the need for additional investment? b. Drawings b. Income c. Beginning Capital d. losses 6. ___________ What decreases owner’s equity due to poor business operation? a.Drawings b. Income c. Beginning Capital d. losses 7. ___________ Which SCE is used by a corporation? a. Statement of Changes in Equity (SCE) Single Proprietorship b. SCE in Partnership c. SCE in Corporation d. Cash flow 8. ___________ What decreases owner’s equity apart from net effect of revenues and expenses? a. Drawings b. Income c. Beginning Capital d. losses 9. ___________ What type of SCE is prepared for for a single proprietorship? a. Statement of Changes in Equity Single Proprietorship b. SCE in Partnership c. SCE in Corporation d. Cash flow 10. ___________ Which advantage in the single proprietorship allows it to be the choice of many businesses except. a. Easy to put up b. freedom of management c. small capital d. large capitalization 11. ___________ Which disadvantage in the partnership makes it risky for investment? a. income b. camaraderie c. unlimited liability d. large investment 12. ___________ What advantage of a corporation addresses risk of investment? a. Liability is up to investment only b. limited cash inflows c. large capital d. portability of capital 13. ___________ What is the advantage of a corporation that makes it the choice of many businesses except? b. Limited risk b. legal personality c. easy to raise capital d. limited life 14. ___________ What is the difference between SCE of partnership and single proprietorship in terms of net income? a. big investment b. income c. division of income d. drawing method 15. ___________ How does a corporation distribute its income? a. Cash flow b. dividend c. Retained earnings d. shares 22 I. Problem Solving (25 pts) The following data were retrieved from the records of Borla’s Barbecue Stand for the year ended December 31, 2016: Borla Capital, January 1, 2016 Php Borla Capital, December 31, 2016 Withdrawals of Capital Additional Investments Net Income for the Year Ended Dec. 31, 2016 120,000 5,000 210,000 50,000 ? Instructions: a. Prepare the Statement of Changes in Equity in good form (10 pts) b. Answer the following Questions: 1. What is the effect of the withdrawals of the owner to the assets of the business? (5 pts) 2. What will it do to the operations of the business? (5) 3. Create a better alternative for Borla other than withdrawals (5pts) Growth doesnt come with a single action. It is the consequence of persistence, courage and hard work. 23 Additional Activities If you have reached this far, it only means one thing, you are already confident of your understanding and are willing to hone your skills further. These are practice problems that will further enhance your knowledge and skills. Practice Problems you can do to hone your skills. Short Problems 1. Caňas beginning owner’s equity amounted to P 50,000. Net profit for the year totaled P 4,000. No additional investments and withdrawals for the period was made. Compute: Did the equity for this period increase? How Much? ___________________________________ Answer: Increase is Ph. 4,000 2. Suraje’s Ending owner’s equity amounted to Ph. 120,000. Additional investments during the year amounted to Ph. 54,000. Withdrawals totaled Ph. 30,000. Compute for the company’s net income for the year assuming beginning equity is Ph. 25,000. How Much? ___________________________________ Practice Problems on Statement of Changes in Equity 1. Betol Trading Company has Ph. 50,000 of capital at the beginning of a reporting period. The entity earns Ph. 7,860 of income, and the owner withdraws Ph. 1,500 from the capital account for the year ended December 31, 2018. Prepare the Statement of Changes in Equity. 2. Dominicata Company has Ph. 50,000 of capital at the beginning of a reporting period. The entity earns Ph. 7,860 of income, and the owner withdraws Ph. 1,500 from the capital account for the year ended December 31, 2018. Prepare the Statement of Changes in Equity. 24 25 BETOL TRADING COMPANY Statement Of Changes Equity For the Year Ended December 31, 2018 Betol Capital, January 1, 2018 Add: Net Profit 2018 Sub- total Less: Withdrawals for the year Php 50,000 7,800 Php 57,800 1,500 Betol Capital, December 31, 2018 Php 56,300 _________________________________________________________________________ Solution for Problem 2 DOMINICATA CONVENIENCE STORE Statement of Changes in Owner’s Equity For the Year Ended December 31, 2018 Php Sub- total Php Dominicata Capital, January 1, 2018 Add: Additional contributions during the period Net Profit 2018 50,000 9,000 24,500 83,500 Less: Withdrawals for the year 12,000 Dominicata Capital, December 31, 2018 Php 71,500 If you got the correct solution you have done well in this module, Congratulations! With continued hard work you will again do well in the next module, the Statement of Cash Flows. Best of Luck! Short Problems Solutions 1.Answer: Increase is Ph. 4,000 2.Answer: P 71,000 (120,000 + 30,000 – 54,000 – 25,000) Answer Key What I Know/ Assessment (pp 6 /23 26 What’s In Quick Check What I can do (p21) (p 7) What I can do B 15. C 14. D 13. A 12. C 11. D 10. A 9. A 8. C 7. D 6. B 5. c 4. C 3. A 2. B 1. Answers 1. Statement of Financial Position 2. 3. 4. Statement of Financial Position Statement of Comp. Income Statement of Comp. Income Selling Expenses 8. Cost of goods sold 7. Cost of Goods Sold 6. Statement of Comp. Income 5. 9. Selling Expenses 10. Other Expenses Identification 1. Single Proprietorship 2. Partnership 3. Corporation 4. Corporation 5. Single Proprietorship True or False 6. False 7. False 8. True 9. True 10. True Effects of Transactions 11. B 12. C 13. C 14. B 15. c References Commission on Higher Education. (2016) Teaching guide for senior high school: Fundamentals of accountancy, business and management 2. Price, J. E., Haddock, M. D., & Brock, H. R. (1999). College Accounting (Chapters 129). McGraw-Hill Higher Education. Spadaccini, M (2009). The basics of business structure. Entrepreneur Magazine Retrieved on May 23, 2020 from https://www.entrepreneur.com/article/200516 27 DISCLAIMER This Self-learning Module (SLM) was developed by DepEd – Division of General Santos City with the primary objective of preparing for and addressing the new normal. Contents of this module were based on DepEd’s Most Essential Learning Competencies (MELC). This is a supplementary material to be used by all learners in General Santos City in all public schools beginning SY 2020-2021. The process of LR development was observed in the production of this module. This is version 1.0. We highly encourage feedback, comments, and recommendations. For inquiries or feedback, please write or call: Department of Education – Division of General Santos City Learning Resource Management System (LRMS) Tiongson St., Lagao, General Santos City Telefax No.: (083) 552-8909 Email Address: depedgensan@deped.gov.ph