Share Premium
Also called: Securities Premium
The extra amount shareholders paid above the Rs 100 face value of a share, on the Balance Sheet. Cannot be paid out as dividend.
In detail
When a company issues shares for more than their face value, the face value goes to Share Capital and the extra, the premium, goes here. A business that has grown since incorporation usually brings in a new investor at a premium, because the shares are now worth more than Rs 100 each. The Companies Act 2063 restricts how share premium may be used: it can fund bonus shares or write off share issue costs but cannot be paid out as an ordinary dividend. The balance stays fixed until such a use, so a moving Share Premium ledger is a sign of a mistaken posting. Record the split carefully, since the Registrar's filing shows only the face value as paid-up capital.
Formula
Share Premium = Number of shares issued x (Issue price - Face value)
Accounting entry
| Account | Debit | Credit |
|---|---|---|
| Bank Account | Rs 6,00,000 | |
| Share Capital | Rs 4,00,000 | |
| Share Premium | Rs 2,00,000 |
How to record it in BRAccount
- 01Record the new holder in Invoicing > Shareholder and the allotment in the board minutes.
- 02Go to Invoicing > Journal Entry > New dated the receipt.
- 03Debit the bank account for the full amount received.
- 04Credit Share Capital for shares times face value and Share Premium for the balance.
- 05Submit. The entry below posts.
- 06Report both figures in the annual return to the Office of the Company Registrar.
When to use it
Post by Journal Entry when shares are issued above face value, for example to a new investor.
Example from the demo books
Dr Bank Account Rs 6,00,000, Cr Share Capital Rs 4,00,000, Cr Share Premium Rs 2,00,000 for 4,000 shares issued at Rs 150.