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Difficulty: EasyIssue of Shares at Par, Premium, and Discount

Highland Beverages Plc offered for public subscription 70,00070,000 ordinary shares of nominal value ₦3.00\text{₦}3.00 each at an issue price of ₦3.50\text{₦}3.50 per share. If all the shares were fully subscribed and paid for, what is the total amount, in Naira (₦\text{₦}), credited to the Share Premium Account?

Answer: 35000 ₦

Answer

The total amount credited to the Share Premium Account is ₦35,000\text{₦}35,000.
The share premium per share is the difference between the issue price (₦3.50\text{₦}3.50) and the nominal value (₦3.00\text{₦}3.00), which is ₦0.50\text{₦}0.50. Multiplying this premium per share by 70,00070,000 shares gives a total Share Premium Account balance of ₦35,000\text{₦}35,000.

Step-by-Step Solution

1
Calculate the share premium per share
₦3.50−₦3.00=₦0.50\text{₦}3.50 - \text{₦}3.00 = \text{₦}0.50
Share premium represents the excess amount paid per share over its nominal (par) value.
2
Compute total Share Premium Account balance
70,000×₦0.50=₦35,00070,000 \times \text{₦}0.50 = \text{₦}35,000
The total amount credited to the Share Premium Account is obtained by multiplying the premium per share by the total number of issued and fully subscribed shares.

Key Concept

Calculation of Share Premium Balance on Issue of Shares
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Topics

Issue of Shares at Par, Premium, and Discount

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