capital surplus: meaning, definition, pronunciation and examples
C1Formal / Technical
Quick answer
What does “capital surplus” mean?
The amount a company earns from issuing shares above their nominal (par) value.
Audio
Pronunciation
Definition
Meaning and Definition
The amount a company earns from issuing shares above their nominal (par) value.
A financial account in shareholders' equity representing excess capital received from investors, often from issuing shares at a premium or from other non-operating equity transactions. In some contexts, it refers more broadly to any excess of a company's net assets over its stated capital.
Dialectal Variation
British vs American Usage
Differences
In UK accounting, the term 'share premium' is far more common and precise for the primary meaning. 'Capital surplus' is used in the US (GAAP) and in more general international financial reporting. The UK may use 'capital reserve' in broader contexts.
Connotations
In the UK, 'capital surplus' might sound like a slightly Americanized or generic term. In the US, it is a standard accounting category with a clear definition.
Frequency
High frequency in US financial/accounting texts. Moderate frequency in UK/international texts, where 'share premium' is often preferred for precision.
Grammar
How to Use “capital surplus” in a Sentence
The company has a capital surplus of [AMOUNT].A capital surplus arose from [TRANSACTION, e.g., the share issue].[ENTITY] credited the amount to capital surplus.Vocabulary
Collocations
Usage
Meaning in Context
Business
The board reviewed the balance sheet, noting the strong capital surplus from last year's successful equity offering.
Academic
The study examines the correlation between a firm's capital surplus and its ability to weather economic downturns.
Everyday
Rarely used in everyday conversation. Might be paraphrased as 'money from selling shares for more than their face value'.
Technical
Under IFRS, the share premium account is analogous to the US GAAP concept of capital surplus arising from share issuance.
Vocabulary
Synonyms of “capital surplus”
Strong
Neutral
Weak
Vocabulary
Antonyms of “capital surplus”
Watch out
Common Mistakes When Using “capital surplus”
- Using 'capital surplus' to mean 'excess cash' or 'profits'.
- Reversing the words to 'surplus capital'.
- Confusing it with 'retained earnings'.
- Treating it as a revenue or profit item.
FAQ
Frequently Asked Questions
No. Profit (retained earnings) comes from operating activities. Capital surplus comes from equity transactions with shareholders, like issuing shares above par value.
Laws vary by jurisdiction. Typically, dividends are paid from retained earnings (profits). Using capital surplus for dividends (often called a 'capital reduction') is usually possible but subject to strict legal and solvency tests.
They are conceptually identical for the primary meaning. 'Share premium' is the specific term under UK accounting and IFRS. 'Capital surplus' is the broader US term, which can also include other non-share-premium equity injections.
It is part of shareholders' equity on the balance sheet, usually listed separately from 'share capital' and 'retained earnings'.
The amount a company earns from issuing shares above their nominal (par) value.
Capital surplus is usually formal / technical in register.
Capital surplus: in British English it is pronounced /ˈkæp.ɪ.təl ˈsɜː.pləs/, and in American English it is pronounced /ˈkæp.ə.t̬əl ˈsɝː.pləs/. Tap the audio buttons above to hear it.
Learning
Memory Aids
Mnemonic
Think of a company's 'capital' (money from owners) having a 'surplus' (extra) because people paid MORE than the official price for the shares.
Conceptual Metaphor
FINANCIAL HEALTH IS A CONTAINER OF WATER: Capital surplus is the water level rising above the marked 'par value' line on the side of the container.
Practice
Quiz
What is the most accurate description of 'capital surplus'?