What do you mean by issue of shares at a premium? State the purpose for which the share premium amount can be utilised.
Understand the Problem
The question is asking for the definition of issuing shares at a premium and the purposes for which the premium amount can be used. This involves a conceptual explanation in finance or corporate law.
Answer
Issuing shares at a premium is selling shares above face value. The premium can be used for equity costs, issuing bonus shares, or debt repayment.
The issue of shares at a premium occurs when shares are issued at a price above their face value. The share premium amount can be utilized for various purposes, such as writing off equity-related expenses, issuing bonus shares, or paying back certain liabilities.
Answer for screen readers
The issue of shares at a premium occurs when shares are issued at a price above their face value. The share premium amount can be utilized for various purposes, such as writing off equity-related expenses, issuing bonus shares, or paying back certain liabilities.
More Information
Issuing shares at a premium is common in companies with a strong market reputation. This boosts the company's funds without altering the capital structure significantly.
Tips
Ensure not to confuse 'face value' with 'market value'; face value is the original cost of the share.
Sources
- Issue of Shares at Premium - TutorialsPoint - tutorialspoint.com
- Share Premium Account - Overview, Components, Uses - corporatefinanceinstitute.com
- Share Premium Account: What It Is, How It's Used, Examples - investopedia.com
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