Contributed Capital Definition and Example
Contributed Capital Definition – Capital funds received in exchange for stock.
It is the amount of capital or assets given by the shareholders in exchange for the stock purchased. In simple words it refers to the price that the shareholders have to pay for acquiring the shares of the company. This capital is further divided into two parts – common stock and paid in capital in excess of face value of stock.
The common stock refers to the value of shares at the par value. On the other hand paid up capital in excess of par value consists of the money over and above the par value. To be precise, it is the amount of excess money that the shareholders are willing to pay for the stock of a particular company.
Example of Contributed Capital
To make you understand contributed capital definition more clearly, let’ quote an example.
Say, XYZ is a company that has issue 2000 shares of Rs. 10 each. Now the money received from the investors who subscribe for its share is Rs. 50,000. Here the common stock amount is Rs. 20,000 and remaining Rs. 30,000 will transfer to capital paid in excess of par value. Addition of both the amount reflects the money that the shareholders are willing to pay for acquiring the stock.
Related Financial Terms of Contributed Capital
- Equity Definition – Equity Formula and Example
- Shareholders Equity Meaning – Definition, Formula, Importance
Treatment of Contributed Capital in Balance Sheet
It is shown in the Liabilities and Shareholder’s equity side of Balance Sheet under the head Shareholder’s equity as Common stock and paid in capital more than par value. The most important thing to note is that, the company records this type of capital only when there is direct selling of stock to the investors.
In most cases, organizations records the contributed capital when they bring IPO. Companies do not records any transactions when investors trade their stocks. As company do not receive any money.