Premium is generally called with the amount due on allotment, sometimes with the Application money and rarely with the call money. The premium amount is credited to a separate account called ‘Securities Premium A/c’ and is shown in the company’s balance sheet under the heading ‘Reserves and Surpluses’.

 

Purposes for which Securities Premium Account can be used:

According to (Section 52(2) of The Companies Act, 2013):

(a) To issue fully paid bonus shares.

(b) To write-off preliminary expenses of the company.

(c) To write-off the expenses/commission/discount allowed on the issue of shares / debentures.

(d) To pay premium on the redemption of preference shares /debentures.

(e) To purchase its own shares (buy back of shares).

The Journal entries for shares are issued at a premium can be shown as:

 

(1) Premium amount called with Application money:

No. Transaction Journal Entry Amount
1. Premium Amount called with Application money Bank A/c                     Dr.

To Share Application A/c

 App. money including premium per share x no. of shares applied.
2. Transfer of application money. Share Application A/c       Dr.

To Share Capital A/c

To Securities Premium A/c

 Total App. Money received.

App. Mny/share x no. allotted.

Premium/share x no. allotted.

 

(2) Premium Amount called with Allotment Money:

No. Transaction Journal Entry Amount
1. Amount due on allotment of shares. Share Allotment A/c          Dr.

To Share Capital A/c

To Securities Premium A/c

 Total Allotment money due.

Allot. Mny/share x no. allotted.

Premium/share x no. allotted.
2. Allotment money received including premium Bank A/c                      Dr.

To Share Allotment A/c

 Total Allotment money actually received.

Forfeiture and Re-issue of Forfeited Shares

Test Your Understanding - Share Capital 3