Financial Accounting · Capital structure and finance costs

Issue of Shares: Nominal Value and Share Premium

Updated 11 October 2026 · Fact-checked

When a company issues shares, it credits share capital with the nominal value of the shares and credits share premium with any amount received above nominal value. It debits cash (or bank) with the full proceeds. Share premium is part of equity, not income, so it never goes through profit or loss.

Understand Issue of Shares: Par Value and Share Premium

A share has a nominal value (also called par value), for example $1 per share. This is a fixed legal amount printed on the share. It is not the same as what the share is worth or what investors pay.

A company often sells new shares for more than nominal value. The extra amount is the share premium. If a $1 share is issued for $1.50, then $1 is share capital and $0.50 is share premium.

Both amounts belong to the owners, so both sit in equity in the statement of financial position. Share capital shows the nominal amount. Share premium is a separate reserve. It is a capital receipt, not a profit, so you never record it as income.

The double entry is simple. Debit the asset that comes in (cash or bank) with the total received. Credit share capital with number of shares × nominal value. Credit share premium with number of shares × premium per share. The debit must equal the two credits.

If the company pays costs of issuing the shares, such as legal and broker fees, IAS 32 treats them as a deduction from equity. In ACCA FA questions, you normally write them off against the share premium account. Check the wording of the question for any other instruction.

Key formulas to remember

Share capital credited: Number of shares × nominal value per share; Always uses nominal value, whatever price was paid.
Share premium credited: Number of shares × (issue price − nominal value); Only arises when issue price is above nominal value.
Cash received: Number of shares × issue price; Equals share capital plus share premium.
Journal for issue at a premium: Dr Cash/Bank (total proceeds); Cr Share capital (nominal); Cr Share premium (excess); Total debits must equal total credits.
Issue costs: Dr Share premium; Cr Cash/Bank; Costs of issuing shares are deducted from equity, not expensed in profit or loss.

How to solve Issue of Shares: Par Value and Share Premium questions

Use this method for any question on issuing shares at par or at a premium.

1Find the number of shares issued and the nominal value per share.
2Find the issue price per share. If the question gives total cash, divide by the number of shares.
3Calculate cash received: shares × issue price.
4Calculate share capital: shares × nominal value.
5Calculate share premium: cash received minus share capital.
6Write the entry: debit cash, credit share capital, credit share premium.
7Deal with any issue costs by debiting share premium and crediting cash.
8Update the closing balances: opening balance plus the new amounts. Then place them in the equity section.

Quickest way: Nominal first, premium is the balance

When to use it: Use this in the objective test when you need only a closing balance or one amount.

Work out share capital first: shares × nominal value.
Take total cash received and subtract share capital. The result is the premium.
Add to the opening balances of share capital and share premium.
Subtract issue costs from share premium only.
Check that the increase in equity equals cash received less issue costs.

Common mistakes in Issue of Shares: Par Value and Share Premium

Crediting the whole proceeds to share capital.
Students forget that share capital is always held at nominal value.
Fix: Split the proceeds: nominal value to share capital, the excess to share premium.
Treating share premium as income in profit or loss.
The premium looks like a gain because it is extra cash.
Fix: Remember it is a capital receipt from owners. It goes straight to equity.
Calculating the premium using the market price.
Questions may mention a market price that is different from the issue price.
Fix: Use the price at which the company actually issued the shares.
Charging issue costs as an expense.
Costs of legal and professional fees feel like normal expenses.
Fix: Deduct them from share premium. Do not put them in profit or loss.
Mixing up the number of shares with the dollar value of share capital.
Questions give the nominal value of the capital, such as $50,000, instead of a share count.
Fix: Divide share capital by the nominal value per share to find the shares in issue before calculating the premium.
Adding the new issue and forgetting the opening balance.
Students stop after writing the journal.
Fix: Read what the question asks: the entry or the closing balance. If it is a balance, add the opening figure.

Worked examples

Example 1

A company issues 200,000 ordinary shares of $1 each at $1.60 per share, for cash. What are the amounts credited to share capital and share premium?

Show the solution

Cash received = 200,000 × $1.60 = $320,000.
Share capital = 200,000 × $1 = $200,000.
Share premium = $320,000 − $200,000 = $120,000.
Check: premium per share is $0.60, and 200,000 × $0.60 = $120,000.

Answer: Dr Bank $320,000; Cr Share capital $200,000; Cr Share premium $120,000.

Example 2

At the start of the year, a company had share capital of $500,000 (50c shares) and share premium of $80,000. During the year it issued 300,000 new 50c shares at $0.90 each, and paid issue costs of $12,000 in cash. What are the closing share capital and share premium balances?

Show the solution

Share capital on new shares = 300,000 × $0.50 = $150,000.
Cash received = 300,000 × $0.90 = $270,000.
Premium on the issue = $270,000 − $150,000 = $120,000. (Check: $0.40 × 300,000 = $120,000.)
Deduct issue costs from the premium: $120,000 − $12,000 = $108,000.
Closing share capital = $500,000 + $150,000 = $650,000.
Closing share premium = $80,000 + $108,000 = $188,000.

Answer: Closing share capital is $650,000 and closing share premium is $188,000.

Exam tips

In multiple choice, the wrong options are often built from common errors, such as the full proceeds in share capital. Calculate your own answer before looking at the options.
In number entry questions, check whether the question wants the premium, the share capital or the closing balance. Re-read the last line before you type.
If a question gives total share capital and the nominal value, find the number of shares first.
Issue costs reduce share premium, not profit. Do not subtract them from share capital.
In a multi-task question on accounts preparation, show share capital and share premium as separate lines in equity.

Practice questions from Capital structure and finance costs

Issue of Shares: Par Value and Share Premium in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Issue of Shares: Par Value and Share Premium: frequently asked questions

What is share premium in simple terms?

It is the amount a company receives for a share above its nominal value. For example, if a $1 share is sold for $3, the premium is $2. It is recorded in a separate equity reserve.

Is share premium income?

No. It is a receipt from owners for shares, not a profit from trading. It is credited to the share premium account in equity and never goes through profit or loss.

Where do share issue costs go?

Under IAS 32 the costs directly related to issuing shares are deducted from equity. In ACCA FA you normally debit them to the share premium account, so they reduce that reserve.

Can shares be issued below nominal value?

In general, no. Company law in many countries does not allow shares to be issued at a discount to nominal value. ACCA FA questions normally issue shares at nominal value or at a premium.