Issue of Shares at Premium
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:
Issue of Shares at Premium
(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