Database definition

What is additional contributed capital? Definition and example

Additional paid-up capital is used to calculate the amount investors paid to receive shares of a company.

What is additional contributed capital?

Paid-in capital is an entry on the balance sheet that represents the amount investors pay for a company’s stock above par. It is also called share premium or capital surplus. When investors buy a company’s share capital, that share capital is usually sold above its face value and becomes its contributed capital.

For publicly traded companies, additional contributed capital is the difference between the par value of the shares and the amount investors pay for the shares when a company goes public. This difference is also known as paid-up capital in excess of face value. It is included in the equity section of the balance sheet and may be included in the item for issuing common and preferred shares. In other cases, it may appear on a separate line.

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TheStreet Dictionary Terms

An issue premium can be recorded on the balance sheet of a period each time a company sells new shares or buys back shares. When a company issues new shares again after its IPO, it is called a complementary offer (or secondary offer).

Below is a sample entry on additional contributed capital for Company A. Par value lists all shares issued, which in this case is just common stock of 1 billion shares at 0 $.01 par value per share. Since the IPO was priced at $15 per share, that means $15 billion worth of shares were sold to investors, bringing its total capital to $15 billion. With a paid-up capital of $10 million, the additional paid-up capital can be calculated at $14.99 billion.

Company A sells 1 billion shares of common stock, with a par value of $0.01 per share. Its initial public offering values ​​the stock at $15. Paid-up capital

1 billion common shares at $0.01 par value per share

$10,000,000

Premium

$14,990,000,000

Total paid-up capital

$15,000,000,000

Why is additional contributed capital important?

If a company does not record total paid-up capital on its balance sheet, additional paid-up capital is a close measure of total, since the face value figure is likely to be low.

Can the additional contributed capital be negative?

The nominal value is fixed at a value greater than zero and the issue premium can never be negative.