A source of contributed capital that can result from certain types of equity transactions, including the reacquisition of shares.

A source of contributed capital that can result from certain types of equity transactions, including the reacquisition of shares.

• A. Authorised share capital
• B. Contributed surplus
• C. Inventory
• D. Outstanding share capital

Answer: (B)

Contributed surplus is a reserve in equity that captures capital put in by owners beyond the nominal share capital, and it can be affected by equity transactions such as reacquiring the company’s own shares. When shares are issued above par value, the excess goes into contributed surplus (share premium). Likewise, the act of buying back (treasury stock) and later reissuing can create or adjust contributed surplus through the accounting treatment of the difference between amounts received and the par value. In short, this item represents contributed capital arising from equity actions, including transactions involving the company’s own shares. The other concepts don’t describe a reserve of contributed capital. Authorized share capital is just the maximum amount the company is authorized to issue, not an actual reserve. Inventory is a current asset, not part of equity. Outstanding share capital reflects the shares that have been issued and are currently held by shareholders, not a reserve created by equity transactions.

Contributed surplus is a reserve in equity that captures capital put in by owners beyond the nominal share capital, and it can be affected by equity transactions such as reacquiring the company’s own shares. When shares are issued above par value, the excess goes into contributed surplus (share premium). Likewise, the act of buying back (treasury stock) and later reissuing can create or adjust contributed surplus through the accounting treatment of the difference between amounts received and the par value. In short, this item represents contributed capital arising from equity actions, including transactions involving the company’s own shares.

The other concepts don’t describe a reserve of contributed capital. Authorized share capital is just the maximum amount the company is authorized to issue, not an actual reserve. Inventory is a current asset, not part of equity. Outstanding share capital reflects the shares that have been issued and are currently held by shareholders, not a reserve created by equity transactions.