What is Share Premium?
- what is Share Premium
- how does the company use it?
Today, they understand about share premiums, what it is, how the company collects it and how it is used. How shares show premiums in balance sheets and what benefits it can make to the company and shareholders.
Share Premium balance sheet
The share premium account is usually shown in the balance sheet of the company with share capital and reserves in favour of liabilities. The account contains the money paid by the shareholder which the shareholder has paid in addition to the face value of the share to get the share.
This account can be used for equity related expenses, such as underwriting expenses. It can also be used to issue bonus shares. The company may seek premium in addition to the face value of the share in IPO or in the right issue.
How to understand Share Premium
The difference between the face value of the shares of the company and the total amount received for the recently released shares is called Share Premium. For example, the company ABC has released 1000 shares of its stock. The face value or at par value of the shares is 10 per share but the company has been paid 15 per share. So, in this case, 15000 will be collected, out of which 10000 shares will go to capital and 5000 Share Premium will go to the account.
Share Premium means of raising money
Share Premium company has funds that are neither capital nor loans, but it can still be used to repay loans to the company or expand the company's work. Here you understand that the company pays dividends on the share capital and interest on the loan. But there is no such thing to be done on this.
We can say that it is a means of raising money for any company whose additional burden is the lowest on the company. Here also understand that any shareholder will agree to pay a premium to a company only if he believes that the company is in good financial condition, the market price and book value of the company's stock justifyites it.
Difference in premiums received by market and company
Here also, when you take the above mentioned company ABC's stock market for 15, you actually charge a premium of 5. But in this case, it goes to the shareholder selling the additional amount. But it goes to the company only when a company takes Share Premium through IPO or right issue and is credited to the balance sheet liabilities.
Comparison with Book Value
In this case, if the ABC company is giving any share for 15, it will be called the issue price. If you compare it with the book value of the previous shares of the company, it will be a little easier to understand.
Book value and issue price or offer price are generally around. If the issue price is much higher than the previous book value, you can say that the company is demanding a higher premium.
Share Premium understood what the share premium is and how the company uses it, how the company collects it and how it is used.
Hi , This is Pramod Choudhary from Nagaur Rajasthan India. I an student and I would like to share my positive thinking with everyone that's my passion . Thank you
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