CA Foundation · Accounting · Company Accounts
A company issues 10,000 equity shares of ₹10 each at a premium of ₹5 per share. The shares are subscribed and fully paid. Which statement correctly reflects the journal entry for the premium received?
When equity shares are issued at a premium, the bank is debited with the total amount received (₹150,000). Equity Share Capital is credited with the face value (₹100,000) and Share Premium Account is credited with the excess amount (₹50,000). The premium is a capital reserve with restricted use.
- ADebit Bank ₹150,000; Credit Equity Share Capital ₹150,000
- BDebit Bank ₹150,000; Credit Equity Share Capital ₹100,000 and Share Premium ₹50,000Correct
- CDebit Bank ₹100,000; Credit Equity Share Capital ₹100,000 and Share Premium ₹50,000
- DDebit Bank ₹150,000; Credit Share Premium ₹150,000
Explanation
When shares are issued at a premium, the face value goes to Equity Share Capital and the excess (premium) goes to Share Premium Account. Here, 10,000 × ₹10 = ₹100,000 (capital) and 10,000 × ₹5 = ₹50,000 (premium). Total bank receipt = ₹150,000. Share Premium is a capital reserve and cannot be distributed as dividend.
Did you get it right without looking?
One question tells you little. A timed set on Company Accounts shows your real accuracy, how long you take and where you lose marks.
More Company Accounts questions
- Gupta Foods Ltd. forfeited 100 equity shares of Rs 10 each, on which the shareholder had paid Rs 6 per share (including nothing as premium),…
- Under the Companies Act, 2013, which of the following is a correct statement about the buy-back of shares by a company?
- A company's debentures with a face value of ₹50,000 are issued at a discount of 8%. On maturity after 5 years, the company must redeem them …
- Mehta Textiles Ltd. issued 10,000 equity shares of Rs 10 each at a premium of Rs 4 per share. Which of the following correctly describes how…