Issued Capital: Meaning and Example

Issued Capital signifies the total value of a company's issued shares, illustrating funds raised. Its importance lies in influencing company valuation, financial health, and strategic decisions. Proper reporting in financial statements is crucial for transparent communication with stakeholders.

Imagine a popular Indian café chain, "SpiceBrew," wants to open more outlets. It decides to sell 100,000 shares to the public at ₹500 each. Investors buy all the shares, giving SpiceBrew ₹50 million (5 crore rupees) in issued capital. This money is now used by SpiceBrew to open new cafes, upgrade existing ones, and enhance its menu offerings. Here, the ₹50 million represents the issued capital, essentially the funds raised from the public for SpiceBrew's growth.

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Table of Content

• What is Issued Capital?
• Example of Issued Capital
• Importance of Issued Capital
• How to Report Issued Capital in Financial Statement

What is Issued Capital?

Issued capital refers to the monetary value of shares that a company has allocated and sold to shareholders. It represents the funds raised by the company through issuing shares to investors and is a key component of a company's equity. Unlike authorized capital, which is the maximum share value a company can issue, issued capital is the actual amount raised and can significantly impact a company's financial structure and investor perceptions.

Companies be it any business form sole proprietorship or partnership issue capital due to the following reasons:

• Financing acquisitions or mergers.
• Paying off existing debts or improving the company's debt-to-equity ratio.
• Investing in research and development.
• Enhancing company infrastructure and operations.
• Diversifying the business portfolio.
• Supporting working capital needs.
• Providing an exit route for existing investors or allowing employee stock ownership.
• Improving public perception and company credibility.
• Capitalizing on favorable market conditions.

Example of Issued Capital

An Indian retail company, "GreenMart Stores," aims to launch new outlets across India. It issues 200,000 shares at ₹150 each to investors. This share issuance is fully subscribed, leading to ₹30 million (3 crore rupees) in issued capital. This capital injection allows GreenMart to open new stores, upgrade existing ones, and enhance its supply chain. The ₹30 million represents the issued capital, signifying funds raised from investors, crucial for GreenMart's expansion and operational enhancement within India.

Importance of Issued Capital

Fundraising for Growth

Issued capital is a primary source of funds for companies, enabling them to finance expansions, new projects, or acquisitions without the need for loans, thereby avoiding interest costs.

Balance Sheet Strength

It enhances a company's balance sheet by increasing equity, which can improve financial ratios and make the company more attractive to investors and lenders.

Shareholder Base Expansion

Issuing capital helps diversify and expand the shareholder base, which can lead to a more stable and distributed ownership structure.

Market Confidence and Credibility

Successfully issued capital often boosts market confidence in the company, enhancing its credibility and reputation in the financial markets.

Strategic Flexibility

Access to capital through issued shares provides companies with the financial flexibility to seize strategic opportunities quickly, adapt to market changes, and invest in innovation for long-term success.

How to Record Issued Capital in Financial Statement

Identify the Total Amount of Issued Capital: Determine the total amount raised from issuing shares. This is calculated by multiplying the number of shares issued by their issue price.

Record in the Balance Sheet: Issued capital is recorded under the equity section of the balance sheet. It's categorized as 'Shasre Capital' or 'Issued Capital'.

Break Down the Components: If the issued capital consists of different types of shares (like common stock and preferred stock), each type should be recorded separately under the equity section.

Include Additional Paid-in Capital: If shares are issued at a premium (above par value), the excess amount is recorded as 'Additional Paid-in Capital' or 'Share Premium' in the equity section.

Update Shareholder's Equity: The total issued capital increases the total shareholder's equity. It's important to update this figure to reflect the new issued capital.

Reflect in the Statement of Changes in Equity: Record the issuance of new shares in the Statement of Changes in Equity, detailing the movement in equity from the start to the end of the reporting period.

Disclosures in Financial Statements: Include notes in the financial statements that provide details about the share issuance, such as the date of issuance, number of shares, type of shares, and issue price.

Comply with Relevant Accounting Standards: Ensure compliance with relevant accounting standards such as IFRS (International Financial Reporting Standards) or Ind AS (Indian Accounting Standards) for accurate representation and disclosure.

Conclusion!

Issued Capital, the total value of a company's issued shares, is a pivotal metric reflecting its financial structure and investor appeal. It exemplifies the funds raised through share issuance. The significance of Issued Capital lies in its impact on company valuation and financial health. Properly reporting it in financial statements is essential for transparent communication, aiding stakeholders in assessing a company's stability and growth potential. Issued Capital stands as a cornerstone in corporate finance, influencing strategic decisions and investor confidence.