Additional Paid-In Capital

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Additional Paid-In Capital

Additional paid-in capital (APIC), also called contributed capital in excess of par, is the amount investors pay for newly issued shares above the stock’s par value. It appears in the shareholders’ equity section of the balance sheet and represents capital the company receives from issuing stock at a premium.

How APIC works

  • APIC is created when a company issues new shares (for example, at an IPO) and investors pay more than the stated par value.
  • Only purchases made directly from the company (primary market transactions) create APIC. Secondary-market trades between investors do not affect APIC.
  • The cash received from a stock issuance is recorded as an asset (cash) on the balance sheet; the corresponding equity credits are posted to common stock (at par value) and APIC (the excess).

Example:
– A company issues 1,000,000 shares with a par value of $1 and receives $11 per share from investors.
– Total proceeds = $11,000,000. Par value portion = $1,000,000. APIC = $11,000,000 − $1,000,000 = $10,000,000.

Accounting treatment

Typical journal entry when shares are issued:
– Debit: Cash (total proceeds)
– Credit: Common stock (par value × shares issued)
– Credit: Additional paid-in capital (the excess)

APIC is reported as a credit within shareholders’ equity; the cash received is shown in assets.

Formula

APIC = (Issue price − Par value) × Number of shares issued

Par value vs. market value

  • Par value is a nominal value assigned to shares at issuance and is often set very low (e.g., $0.01) to limit legal liability.
  • Market value is the current trading price determined by supply and demand; it fluctuates in the secondary market and does not affect APIC after the initial issuance.

APIC vs. Paid-in Capital

  • Paid-in capital (contributed capital) equals the total cash or assets shareholders have given the company in exchange for stock: par value plus any amount paid in excess.
  • APIC refers specifically to the amount paid above par for shares issued by the company. Both items typically appear together in the equity section.

Benefits and uses

  • Provides companies with permanent capital without incurring debt or fixed payment obligations.
  • Funds raised via APIC can be used for growth, paying down debt, acquisitions, or other corporate purposes.
  • Unlike debt, equity raised through APIC does not require collateral or scheduled repayments; dividends are discretionary.
  • APIC contributes to the equity buffer that can absorb losses before retained earnings are depleted.

How APIC changes

  • Increases when a company issues new common or preferred shares at a price above par.
  • Decreases when the company repurchases shares (treasury stock transactions) or retires shares, depending on accounting treatment and jurisdiction.

Quick FAQs

Summary

Additional paid-in capital measures how much investors pay above par value when buying newly issued shares. It increases a company’s equity and provides flexible, non-debt financing. APIC is recorded in shareholders’ equity and only changes with new issuances or corporate share transactions like repurchases.