Share premium can be thought of as the difference between the par value of a company’s shares and the total amount of money a company receives for shares recently issued.
Share Capital and Share Premium are major components of equity. The key difference between share capital and share premium is that while share capital is the equity generated through the issue of shares at face value, share premium is the value received for shares that exceed the face value.
(i) The auditor should examine the Prospectus, the Articles and the Minutes of the Directors to see whether the issue of shares at a premium is duly authorized or not. He should confirm the rate of premium. (ii) The receipt of the premium is vouched with the entries in the Cash Book and the supporting documents.
Share premium is the credited difference in price between the par value, or face value, of shares, and the total price a company received for recently-issued shares. … A share premium account appears in the shareholders’ equity section of the balance sheet.
Share premium: Though , as per definition of ‘free reserves’ , share premium is not ‘free reserve‘ because dividend cannot be declared out of share premium. However, ‘share premium’ is considered just like free reserves for many of purposes as per specific provisions.
Provisions of Section 56(2)(viib) says that when a private limited company issues share at a price which is more than its Face Value then consideration receives in excess of Fair Market Value (FMV) is taxable under the head “Income From Other Source”.
A company issues its shares at a premium when the price at which it sells the shares is higher than their par value. This is quite common, since the par value is typically set at a minimal value, such as $0.01 per share. The amount of the premium is the difference between the par value and the selling price.
Ensure the company’s articles allow a capital reduction. All directors must sign a solvency statement. Shareholders must approve the capital reduction via a special resolution (needing 75% of the votes) within 15 days of the solvency statement date.
Utilising the share premium account.
|Balance sheet (before reduction)|