Problem 7: Sun India Ltd. (Shares issued at premium where the premium is included in the allotment stage, Calls-in Arrears, Forfeiture and Re-issue of Shares) Journal Entries: In the Books of Sun India Ltd.
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Answer:
The issue of shares at premium refers to the issue of shares at a price higher than the face value of the share. In other words, the premium is the amount over and above the face value of a share.
Usually, the companies that are financially strong, well- managed and have a good reputation in the market issue their shares at a premium. For example, if a company issues a share of nominal or face value of ₹10 at ₹11, it issues it at 10% premium.
A company may call the amount of premium from the applicants or shareholders at any stage, i.e. at the time of application, allotment or calls. However, a company generally calls the amount of Premium at the time of allotment.
Accounting treatment of Securities Premium
The company needs to credit the amount of Premium in a separate account i.e. Securities Premium A/c, as it is not a part of the Share Capital. It is actually a gain for the company. As per the Companies Act, 2013 the company shows the credit balance of the Securities Premium A/c under the heading ‘Reserves and Surplus’ on the liabilities side of the Balance Sheet.
Also, section 52 of the Companies Act, 2013 states how a company can use the Securities Premium. The following are the provisions regarding this:
The company can use the amount towards the issue of un-issued shares to the shareholders or members of the company as fully paid bonus shares.
It can use this amount to write off the preliminary expenses.
The company may use it to pay the premium on the redemption of debentures or redeemable preference shares.
It can also use this amount to write off the expenses incurred, commission paid or discount allowed on the issue of any securities or debentures.
It can also use it for buy-back of own shares or any other securities.
Answer:
The issue of shares at premium refers to the issue of shares at a price higher than the face value of the share. In other words, the premium is the amount over and above the face value of a share.
Usually, the companies that are financially strong, well- managed and have a good reputation in the market issue their shares at a premium. For example, if a company issues a share of nominal or face value of ₹10 at ₹11, it issues it at 10% premium.
A company may call the amount of premium from the applicants or shareholders at any stage, i.e. at the time of application, allotment or calls. However, a company generally calls the amount of Premium at the time of allotment.
Explanation:
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