What is Additional Paid-in Capital (APIC)? – Definition
Stockholders may have claims against the corporation arising from payments into the company from events other than operations or the issuance of stock. While the most precise approach would identify the specific origin of the claims, immateriality usually results in their being grouped into a single Additional Paid-In Capital or Capital in Excess of par account. The paragraphs below describe several examples of events that create this type of claim.
In the event that a subscriber to stock fails to pay in the full amount promised and the corporation is allowed to keep some or all of the cash paid in prior to the default, additional paid-in capital is created to the extent of the unrefunded amount. Refer to the Sample Company situation and assume further that a subscriber to 10,000 shares defaults on May 1.
If 90,000 shares are issued to the paid-up subscribers, this entry would be made:
At this point, account associated with the default have these balances:
Further, the corporation has accepted $150,000 of the subscriber’s cash. If the full amount is refunded on May 15, this entry would be made:
A much more likely situation would call for the corporation to keep part of the cash in order to recover its costs. Suppose that Sample Company is allowed by the agreement to keep 30 percent of the cash; this entry would be made when the defaulted subscriber is refunded $105,000, or 70 percent of the $150,000 paid in:
The $45,000 (30 percent of $150,000) of additional paid-in capital represents claims held by the nondefaulting stockholders.
A firm may accept a donated asset from a local government agency. The most common practice for recognizing the increase in stockholders’ equity calls for a credit to Additional Paid In Capital. If the Sample Company accepts a plot of land worth $850,000 as a donation, this entry would be made:
If the amount of capital created by this action is material, a more descriptive title might be used, such as Paid-In-Capital—Donated Assets, and the account balance would be separately disclosed. Whatever it is called, the account describes the claims held by the stockholders that arose from the acceptance of the assets.