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Question
Answer in one Sentence only :
What is meant by share premium?
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Solution 1
As per Section 78 of the Companies Act, 1956, when the shares are issued to the public at a price more than their par value, i.e. face value, the shares are said to be issued at a premium. The amount of premium received is credited to a separate account known as Securities Premium Account. It can be used for the following purposes:
a. For writing-off preliminary expenses of the company
b. For writing-off expenses of commission paid or discount allowed on issue of shares or debentures of the company
c. For issuing bonus shares
Solution 2
Issue of shares at a premium means the issue of shares by a company at a price higher than the face value of the shares. (The difference between the issue price, i.e., the price at which the shares are issued, and the face value of the shares is called share premium) for example, when shares of the face value of Rs.10 each are issued at a price of Rs.12 per share, the shares are said to be issued at a premium.
