When a company issues its shares at a price higher than their nominal or face value, it is known as the issue of shares at a premium. The premium is the amount by which the issue price exceeds the face value of the shares. This premium is considered additional capital raised by the company.
The reasons for issuing shares at a premium may vary, but common reasons include:
a) To raise additional funds for specific purposes such as expansion, research and development, or debt repayment.
b) To enhance the company's financial position by increasing its share capital and reserves.
c) To attract investors by demonstrating confidence in the company's prospects.
The premium received on the issuance of shares is generally transferred to a separate account called the "Share Premium Account" or "Capital Surplus Account" and is treated as part of the company's reserves. The company can utilize these reserves for various purposes, such as issuing bonus shares, writing off accumulated losses, or paying dividends.
2. Issue of Shares at Discount:
When a company issues its shares at a price lower than their nominal or face value, it is known as the issue of shares at a discount. The discount is the amount by which the issue price is lower than the face value of the shares.
The issuance of shares at a discount is less common and is subject to legal and regulatory restrictions in many jurisdictions. It is generally not allowed to issue shares at a discount unless specific conditions are met, such as court approval or a company's financial reconstruction.
The purpose of issuing shares at a discount may include:
a) To attract investors and increase demand for the shares by offering them at a lower price.
b) To quickly raise funds in situations where the company is facing financial difficulties or needs immediate capital infusion.
c) To adjust the market price of shares to align with their actual market value.
The amount of discount on the issuance of shares is usually recorded as an expense in the company's financial statements and is shown as a deduction from the company's share capital. It reduces the amount of capital raised through the issuance of shares.
When a company issues shares at a price higher than their face value, it is known as the issue of shares at a premium. The premium is the amount by which the issue price exceeds the face value of the shares. This premium is an additional payment made by the shareholders over and above the nominal value of the shares. The company may decide to issue shares at a premium when it believes that the market value of its shares is higher than the face value. The premium received on the issue of shares is typically transferred to a separate account called the "Securities Premium Account," which can be utilized for specific purposes outlined in the company's articles of association.
2. Issue of Shares at Discount:
The issue of shares at a price lower than their face value is referred to as the issue of shares at a discount. It means that the shares are issued at a price below their nominal or face value. This situation arises when a company is facing financial difficulties or when there is a lack of investor interest in the shares. However, issuing shares at a discount is generally not allowed under the Companies Act in many jurisdictions unless specific conditions and approvals are met. The discount on the issue of shares is usually treated as an expense and is debited to the "Discount on Issue of Shares" account. It reduces the amount of capital raised by the company.
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1. Issue of Shares at Premium:
When a company issues its shares at a price higher than their nominal or face value, it is known as the issue of shares at a premium. The premium is the amount by which the issue price exceeds the face value of the shares. This premium is considered additional capital raised by the company.
The reasons for issuing shares at a premium may vary, but common reasons include:
a) To raise additional funds for specific purposes such as expansion, research and development, or debt repayment.
b) To enhance the company's financial position by increasing its share capital and reserves.
c) To attract investors by demonstrating confidence in the company's prospects.
The premium received on the issuance of shares is generally transferred to a separate account called the "Share Premium Account" or "Capital Surplus Account" and is treated as part of the company's reserves. The company can utilize these reserves for various purposes, such as issuing bonus shares, writing off accumulated losses, or paying dividends.
2. Issue of Shares at Discount:
When a company issues its shares at a price lower than their nominal or face value, it is known as the issue of shares at a discount. The discount is the amount by which the issue price is lower than the face value of the shares.
The issuance of shares at a discount is less common and is subject to legal and regulatory restrictions in many jurisdictions. It is generally not allowed to issue shares at a discount unless specific conditions are met, such as court approval or a company's financial reconstruction.
The purpose of issuing shares at a discount may include:
a) To attract investors and increase demand for the shares by offering them at a lower price.
b) To quickly raise funds in situations where the company is facing financial difficulties or needs immediate capital infusion.
c) To adjust the market price of shares to align with their actual market value.
The amount of discount on the issuance of shares is usually recorded as an expense in the company's financial statements and is shown as a deduction from the company's share capital. It reduces the amount of capital raised through the issuance of shares.
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1. Issue of Shares at Premium:
When a company issues shares at a price higher than their face value, it is known as the issue of shares at a premium. The premium is the amount by which the issue price exceeds the face value of the shares. This premium is an additional payment made by the shareholders over and above the nominal value of the shares. The company may decide to issue shares at a premium when it believes that the market value of its shares is higher than the face value. The premium received on the issue of shares is typically transferred to a separate account called the "Securities Premium Account," which can be utilized for specific purposes outlined in the company's articles of association.
2. Issue of Shares at Discount:
The issue of shares at a price lower than their face value is referred to as the issue of shares at a discount. It means that the shares are issued at a price below their nominal or face value. This situation arises when a company is facing financial difficulties or when there is a lack of investor interest in the shares. However, issuing shares at a discount is generally not allowed under the Companies Act in many jurisdictions unless specific conditions and approvals are met. The discount on the issue of shares is usually treated as an expense and is debited to the "Discount on Issue of Shares" account. It reduces the amount of capital raised by the company.
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