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## What Is Additional Paid-In Capital (APIC)?

Additional Paid-In Capital (APIC) is the amount that investors are willing to pay in excess of the par value of the shares of stock that a company issues in its Initial Public Offering (IPO).

This accounting item is reported in the Shareholders’ Equity section of the Balance Sheet and is also known as Contributed Surplus or Contributed Capital in Excess of Par.

Just by looking at the Balance Sheet, it can automatically give an indication of how much money is flowing to the company from investors.

## How Additional Paid-In Capital (APIC) Works

When a company goes public, that means that private corporations are offering shares to the public in a new stock issuance.

At the time of the IPO, companies determine the price for each share of stock that they see fit – this price is called the par value.

When investors pay more than the par value, the excess amount becomes the Additional Paid-In Capital (APIC).

To illustrate, assuming Company ABC went public and is selling 100,000 shares of stock with a par value of \$3 for each share but was sold for \$5 each.

The formula to compute for APIC is:

APIC = (Selling Price – Par Value) x Shares Outstanding

Based on the example above, APIC is \$200,000 = (\$5 – \$3) x 100,000.

In the Balance Sheet, \$200,000 will be shown as Additional Paid-In Capital and \$300,000 as Common Stock (Par Value of \$3 x 100,000 shares outstanding).

Not to be confused with the Market Value of stocks when it is traded in the stock market, the APIC is based on the issue price of the shares of stocks.

The market value of the stocks will not affect the amount of APIC in the Balance Sheet.

## Special Considerations

In the Initial Public Offering, when shares are issued and outstanding, there are two entries passed in the books for the common shares and APIC.

When a company receives proceeds of \$500,000 for 100,000 shares issued with a par value of \$3, the accounting entry would be a debit to cash for \$500,000 and a credit to Common Shares of \$300,000 and another credit to Additional Paid-In Capital for \$200,000.

## Par Value

Par Value is an amount that is printed on the face of a corporation’s stock certificate.

This amount is also indicated on the corporation’s charter.

However, there are some states that allow for corporations to sell shares with no par value and the shares certificate will state “no par value” on the face of the document.

Companies set the par value so that investors will be assured that the issuing companies will not be selling stocks below the par value and is set at a minimal amount to avoid any future liability in case the stocks sell below the par value.

## Market Value

The market value is not just applicable to shares of stocks issued by a company – it can refer to the value of any financial instrument at any point in time.

When stocks are traded in the stock market, the value for each share can change depending on the behavior of the market and how the stocks are bought and sold.

In essence, the market value or the real value of stocks are captured in the stock market.

## Additional Paid-In Capital (APIC) vs. Paid-In Capital

When talking about Paid-In Capital, it refers to the shares of stock that a company has issued at its par value and could include both common stocks and preferred stocks and any amount in excess of the par value.

It is essentially an amount that a company receives from investors for the sale of shares of stock.

The formula for Paid-In Capital is:

Paid-In Capital = Par Value + APIC

To be recorded in the books as Paid-In Capital, the shares of stocks must not come from the proceeds of the company under normal operating conditions.

The proceeds must be the sale of stocks to investors by the issuing company.

Additional Paid-In Capital (APIC) on the other hand, only refers to the amount that is paid in excess of the par value of the shares issued.

When presented in the Balance Sheet, the section of the Shareholders’ Equity will show the Common Shares which is the value of the stock issued at par value, and the APIC which is the value of the stocks issued in excess of par.

## Benefits of Additional Paid-In Capital (APIC)

Companies going public by issuing shares of stocks allows for companies to raise additional capital which they will have the discretion on in the manner that they wish to spend it.

Additional Paid-In Capital (APIC) will be shown as a substantial amount in the Shareholder’s Equity portion of the Balance Sheet which can serve as a safeguard for businesses in case the retained earnings show a deficit.

Private companies looking at raising funds will be able to take advantage of issuing stocks to the public because although investors will own a portion of the company, they will not be able to have a claim on the existing assets and the issuing company is not required to pay dividends or make any payment to the investors.

### How Do You Calculate Additional Paid-In Capital (APIC)?

The formula to compute for APIC is simple:

APIC = (Selling Price – Par Value) x Shares Outstanding

### How Does Paid-In Capital Increase?

When the issuing company issues new shares of common or preferred stocks, any payment in excess of the par value is recorded as Additional Paid-In Capital (APIC), which is part of Paid-In Capital (PIC).

### How Does Paid-In Capital Decrease?

Paid-In Capital (PIC) decreases when the issuing company repurchases shares already sold.

This is called a stock buyback.

However, the decrease can only happen when the issuing company buys the shares at a higher per share price than when they sold it.

For example, the company plans to repurchase 100 shares for \$5 per share but was initially sold at \$2.

The proceeds from the initial sale was \$200 but the issuing company repurchased it at \$500.

The difference of \$300 will decrease the Paid-In Capital.

FundsNet requires Contributors, Writers and Authors to use Primary Sources to source and cite their work. These Sources include White Papers, Government Information & Data, Original Reporting and Interviews from Industry Experts. Reputable Publishers are also sourced and cited where appropriate. Learn more about the standards we follow in producing Accurate, Unbiased and Researched Content in our editorial policy.

1. Cornell Law School "§ 32.4520 Additional paid-in capital." Page 1. November 15, 2021

2. Harpercollege.edu "REPORTING AND ANALYZING STOCKHOLDERS’ EQUITY" Page 4 - 6. November 15, 2021

3. Cornell Law School "Par Value" Page 1. November 15, 2021

4. Cornell Law School "Fair market Value" Page 1. November 15, 2021