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Why are shares issued at a premium?


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Answered 2011-03-09 01:28:33

Well the company wants to profit. And issuing shares at premium provides capital to the company without changing its equity capital.


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When shares are issued at value which is more than face value then it is called shares issued at premium.

When shares are issued at price which is more than face value then issuance of shares is called issued at premium and that excess amount above face value is called share premium.

In case the shares have been issued at a premium and the amount of premium has been received then at the time of forfeiture of such share (a) share premium account should be debited (b) share premium account should be credited (c) share premium account should be neither debited nor credited (d) none of these

in case the shares have been issued at a premium and the amount of premium has been received then at the time of forfeiture of such share

If a share has a nominal face value of say $10.00 then if issued at less than $10.00, is said to issued at a discount If issued at $10.00, then issued at par. If issued at more than $10.00 is issued at a premium.

the amount payable for a share above its nominal value. Most shares are issued at a premium to their nominal value. Share premiums are credited to the company's share premium account.

Bonds issued at a premium always have

This is done, usually, only by the company that issued the shares.

Issued Shares Authorized Shares = Issued Shares (sold to investors) + Unissued Shares Issued Shares = Outstanding Stock (held by investors) + Treasury Stock (stock bought back by company)

A share can be defined as an asset that belongs to an individual or a group of people. The various types of shares that can be issued by a company are Authorized and issued shares. Authorized shares are the ones that a company is allowed to issue while issued shares are the shares that are allocated to shareholders.

When company is performing very well and it has reserves available and it has good reputation so in this case companies want to take benefit of this situation and issue share at more than share face value which is called issued shares at premium.

Fully paid shares means that the amount of which shares are fully paid by the investors while shares issued at discount means, share are issued at discounted price from actual face value of asset.

(1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called "the1[securities] premium account"; and the provisions of this Act relating to the reduction of the 1[securities] capital of a company shall, except as provided in this section apply as if the 1[securities] premium account were paid-up 1[securities] capital of the company.(2) The 1[securities] premium account may, notwithstanding anything in sub-section (1), be applied by the company-(a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares;(b) in writing off the preliminary expenses of the company;(c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; or(d) in providing for the premium payable on the redemption of any redeemable preference shares or of any debentures of the company.(3) Where a company has, before the commencement of this Act, issued any shares at a premium, this section shall apply as if the shares had been issued after the commencement of this Act:Provided that any part of the premiums which has been so applied that it does not at the commencement of this Act form an identifiable part of the company's reserves within the meaning of Schedule VI shall be disregarded in determining the sum to be included in the 1[securities] premium account.

Issued shares(I) are shares of stock that have been sold to investors. It includes both outstanding shares(O) and Treasury shares(T). Thus, I = O+T Outstanding shares(O) are shares of stock currently owned by the shareholders.

That part which has been paid should. Shares are sometimes issued and then called in stages; the full issue amount can be paid in installments. If shares are issued and part paid, the unpaid part is (obviously) not paid up. Perhaps the answer you are looking for is the fact it is Share Premium, rather than Nominal, makes no difference. (In fact, the premium bit is more or less meaningless. It just reconciles issuing 10p nominalm shares for (say) £1.00. They are 10p nominal shares with a 90p premium rather than £1.00 shares. If there is a subsequent rights issue at (say) £2.00 per share, each will have a £1.90 premium. The only values that really mean anything are the issue amounts of £1.00 and £2.00 (real money changes hands). The rest are paper numbers. Neither says anything about value; that is determined by demand and supply on the stock exchange.

Issued Shares: The number of shares that has ever been sold to and held by the shareholders of a company. Includes stock that has been repurchased by the company. Does NOT include shares that have been retired.Outstanding Shares: Stock currently held by investors. Does NOT include stock that has been repurchased by the company..If either no shares have ever been repurchased or if all repurchased shares have been retired then Outstanding shares = Issued Shares.

Shares initially sold to an investor and then subsequently repurchased by the issuing corporation. These share are no longer outstanding but remain issued until the corporation cancels them, if it ever does cancel them. Shares issued are not included in the market capitalization calculation.

The bond price exceeds the par price when issued at a premium and declines to the par value as it gets closer to maturity.

Bonus shares increases the share capital while reduces the share premium account because amount of share premium is used to issue bonus shares.

Securities premium reserve is the amount when securities are issued at premium that is more than their face value.

Forefiture of shares issued at par:-Share capital A/c Dr.To share allotment A/cTo Share Call A/cTo share forfeiture A/c(Forfeiture of shares issued at par)

Share premium is used for many purposes and 1 of them is redemption of preference shares and debentures

[Debit] Cash / bank 2500000 Credit Share capital 500000 Credit Share premium 2000000

Issue of shares at par - Shares are said to be issued at par when they are issued at a price equal to the face value. For example if the face value of a share is $100 and issue price is also $100 than the share will be said as thae share has been issued at par.

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