In calculating the amount of investors paid to acquire capital in a company, additional paid-in capital is used.
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Contents
- What Is Additional Paid-In Capital?
- Why Is Additional Paid-In Capital Important?
- Can Additional Paid-In Capital Be Negative?
What Is Additional Paid-In Capital?
Additional paid-in capital is a journal on the balance sheet that represents the amount investors pay for a company''s stock above its par value. It is also known as the share premium, or capital surplus. When investors buy into a company''s capital stock, that capital stock is usually sold above its par value and becomes its paid-in capital.
Additional paid-in capital is the difference between the shares par value and the amount investors pay for the shares at the company''s first public offering. This difference is also known as paid-in capital in excess of par value. It may be included as part of the line item for the sale of common and preferred stock. In other instances, it may appear as a separate line item.
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What Is Additional Paid-In Capital?Definition and Example
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Shay Mitchell, an actor and businessman, has announced an investment and brand collaboration.
If a company sells new shares or repurchases stock, an entry for additional paid-in capital may be made on the balance sheet for a period. This term is used in conjunction with a follow-on offer (or secondary offer).
This example of a par value for Company A. All shares being issued, which represents a limited common stock of 1 billion shares at $0.01 par value per share. This means that the initial initial public offering was valued at $15 billion, putting its total paid-in capital at $15 billion. With the paid-in capital at $10 million, additional paid-in capital is $2.99 billion.
| Company A sells 1 billion common shares, with a par value of $0.01 per share. Its initial public offering prices the stock at $15. | Paid-In Capital |
|---|---|
1 Billion Common Shares at $0.01 Par Value Per Share | $10,000,000 |
Additional Paid-In Capital | $14,990,000,000 |
Total Paid-In Capital | $15,000,000,000 |
The price of a single share of 1 billion common shares is $0.01.
$10,000,000
Additional paid-in capital
$14,990,000,000 is the price of money.
Capital that is totaled paid in pension funds
$15,000,000,000 is the price of investment.
1.0 billion common shares at $0.01 par value per share
$10,000,000
Additional paid-in capital
$14,990,000,000
Capital in real estate is paid to the fullest.
$15,000,000,000 in the works
Why Is Additional Paid-In Capital Important?
If a company fails to include total paid-in capital on its balance sheet, additional paid-in capital is a close measure of the total, considering that the par value figure is likely to be modest.
Can Additional Paid-In Capital Be Negative?
The par value is set at more than zero, and additional paid-in capital is never negative.
