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Issue of Shares at Premium

Shares are said to be issued at premium when they are issued at a price higher than the face value.


The excess of issue price over face value is referred to as ‘share premium’ or ‘security premium’, which is credited to a separate account called ‘securities premium account’.

For example, A Ltd. issues 10,000 shares of face value of ₹ 10 each at ₹ 12 per share. Here ₹ 2 (₹ 12 - ₹ 10) is treated as ‘security premium’.

The amount collected as share premium is disclosed under ‘Reserves and Surplus’ on the liabilities side of the balance sheet.

Section 78 of The Companies Act has laid down the following purposes for which the securities premium can be utilized:

  • To issue fully paid bonus shares to its members
  • To write off preliminary expenses of the company
  • To write off expenses in relation to the issue of shares or debentures of the company
  • To provide for premium payable on redemption of preference shares and debentures of the company

    The following journal entries must be passed at the time of issue of shares at a premium:



  • Securities premium is a capital receipt and not a revenue receipt.
  • Securities premium cannot be treated as free reserves except for the purpose of buy-back of shares.
  • Unless specifically given, it shall be assumed that the securities premium is collected at the allotment stage.


Illustration 3

A Ltd. issued 15,000 equity shares of ₹ 10 each at ₹ 100 per share. The amount payable is as follows:

  • ₹ 20 on application of which ₹ 18 is towards securities premium
  • ₹ 30 on allotment of which ₹ 27 is towards securities premium
  • ₹ 50 on first and final call of which ₹ 45 is towards securities premium



Journal Entries in the Books of A Ltd.

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