Additional paid in capital (APIC) is received from investors when a company issues share capital. The amount that is collected for each share is equal to the sum of the share’s par value and an additional amount. This extra amount is called APIC.
What does additional paid in capital mean?
To understand the meaning of APIC, consider the example of a company that makes an initial public offering. Shares are issued at a price of $100. Of this amount, $1 is the par value, and the remaining sum is the APIC. However, you should remember that in most instances, the par value of a share is very low. Many companies issue shares at a par value of $0.01 or even less. The amount that is received over this goes into the additional paid in capital account. APIC is created when a company issues common stock or preferred stock. The value in the APIC account could fall when a company repurchases its shares. Remember that APIC does not increase or decrease when shares are traded on the stock exchange. That’s because the transaction is between a buyer and seller and the company is not involved. A company could issue shares at, say, $100. The par value could be $1 and the additional paid in capital could be $99.A few years later, these shares may be traded at $1,000 in the secondary market. But this will not affect the company’s APIC account.
Example of additional paid in capital
The following is an extract from Apple Inc.’s Consolidated Balance Sheet on September 30, 2017. The figures shown above are in millions of dollars. Apple’s common stock and additional paid in capital is $35.867 billion. You can see that the par value of the common stock is extremely low. It is only $0.00001 per share.
The sum that a company receives in excess of par value when it issues shares is additional paid in capital. In other words, the issue price minus the par value is equal to APIC.