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

Bamburu Plc issued 40,00040,000 ordinary shares with a nominal value of ₦1.00\text{₦}1.00 each at an issue price of ₦1.30\text{₦}1.30 per share. All shares were fully subscribed and paid for. What total amount should be credited to the Share Premium Account?

  1. ₦12,000\text{₦}12,000Answer
  2. B
    ₦40,000\text{₦}40,000
  3. C
    ₦52,000\text{₦}52,000
  4. D
    ₦28,000\text{₦}28,000

Answer

The correct amount to be credited to the Share Premium Account is ₦12,000\text{₦}12,000.
Share premium per share is the excess of the issue price over the nominal value (₦1.30−₦1.00=₦0.30)(\text{₦}1.30 - \text{₦}1.00 = \text{₦}0.30). Multiplying this by 40,00040,000 shares gives ₦12,000\text{₦}12,000, which is credited to the Share Premium Account as a capital reserve.

Step-by-Step Solution

1
Calculate the premium per share
₦1.30−₦1.00=₦0.30\text{₦}1.30 - \text{₦}1.00 = \text{₦}0.30 per share
Share premium is the amount received over and above the nominal (face) value of each share.
2
Calculate the total share premium to credit
40,000 \text{ shares} \times \text{₦}0.30 = \text{₦}12,000
Multiply the premium per share by the total number of shares issued to determine the balance credited to the capital reserve account.

Key Concept

Accounting for issue of shares at a premium
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Topics

Issue of Shares at Par, Premium, and Discount

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