What is Contributed Capital
Contributed capital, also known as paid-in capital, is the cash and other assets that shareholders have given a company in exchange for stock. This is the price that shareholders paid for their stake in the company.
BREAKING DOWN Contributed Capital
Contributed capital is the total value of stock that shareholders have bought directly from the issuing company. It includes the money from initial public offerings (IPOs), direct listings, direct public offerings and secondary offerings – including issues of preferred stock. It also includes the receipt of fixed assets in exchange for stock and the reduction of a liability in exchange for stock.
Contributed Capital Calculation
Contributed capital is reported in the shareholder’s equity section of the balance sheet and usually split into two different accounts: common stock and additional paid-in capital account. In other words, contributed capital includes the par value – or nominal value – of the stock, found in the common stock account, and the amount of money over and above the par value that shareholders were willing to pay for their shares – the share premium – found in the additional paid-in capital account.
Example of Contributed Capital
For example, a company issues 5,000 $1 par value shares to investors. The investors pay $10 a share, so the company raises $50,000 in equity capital. As a result, the company records $5,000 to the common stock account and $45,000 to the paid-in capital in excess of par. Both of these accounts added together equal the total amount stockholders were willing to pay for their shares. In other words, the contributed capital equals $50,000.