Definition of issue of shares at premium: A term used when a company issues shares of its stock at price above its par value. The excess cash, or. When shares are issued at a price higher than the face value (also called par value or nominal value), it is called an issue of shares at a premium. Excess of. Shares Issued at Premium. When the company decides to issue shares at a price higher than the nominal value or face value we call it shares issued at a premium. It is quite a common practice especially when the company has a great track record and strong financial performances and standing in the market.
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Share Premium Account Definition | Investopedia
June 28, A limited company may issue the shares on following different terms. Issue of Shares for Consideration other than cash or for cash or on capitalization of reserves. Issue of Shares at par i.
Issue of Shares at Premium i. Issue of Shares at Discount i.
Contents Issue of shares at a discount Issue of shares at premium When the shares are issued at a price higher than the nominal value of the shares then it is called as shares issued at a premium. Please note that the Securities Premium is a profit to the company, but it is not a revenue profit, it is treated as Capital Profit, which can be utilized only for the following purposes: Issue of fully paid bonus shares to the existing shareholders.
It is so because the issue of shares at premium of the Companies Act relating to the reduction of issue of shares at premium capital of a company apply to securities premium as if it were the paid-up share capital of the company.
Reduction of share capital can be carried out by a company if the company is authorized by its Articles of Association to do so after passing a special resolution and getting sanction of the court.
The company may collect the amount of securities premium in a lump sum or in installments. The amount of securities premium may be included in either application money or allotment money or a call. If nothing is mentioned to the contrary in a problem, it should be assumed that the entire amount of issue of shares at premium securities premium is to be included in the allotment money.
If the amount of securities premium is included in the application money, the company will debit Bank and credit Share Applications Account issue of shares at premium the amount received from applicants.
On allotment of shares, the amount of securities premium in respect of shares allotted will be debited to Share Applications Account and credited to Securities Premium Account.
If securities premium is to be collected on allotment or a call, the company may adopt either of the following two courses: On receipt of the money, Bank will be debited and Share Allotment Account or the relevant call account will be credited with the issue of shares at premium amount received.
Issue of shares at premium and at discount - General Knowledge Today
When the allotment money or the relevant call is actually received, Bank will be debited with the issue of shares at premium amount received, Share Allotment Account or the relevant Share Call Account will be credited with the amount received on account of share capital and Securities Premium Account will be credited with the amount issue of shares at premium premium received.
Considering that the Companies Act has placed restrictions on the applications of Securities Premium Account, the second method is considered better in which Securities Premium Account will be credited only when the amount of securities premium has actually been received in cash.
Rs 3 with application Rs 4 on allotment Rs 5 on first and final call. The issue was fully subscribed. The call was also duly made.
All moneys were received in time.