CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions
Iyer Pvt. Ltd. issued shares at a premium of Rs 4,00,000 over face value. How is this premium classified?
Share premium is a capital profit. It arises from raising capital by issuing shares above face value, not from the normal trading operations, so it is not treated as revenue income in the profit and loss account.
- ARevenue profit, shown in the profit and loss account
- BCapital profit, not available as normal trading profitCorrect
- CRevenue receipt, because it is received in cash
- DCapital loss, because shares are issued
Explanation
Securities premium arises from raising capital and not from trading activity, so it is a capital profit. It is not credited to the profit and loss account as operating income.
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