CA Foundation · Accounting · Company Accounts
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 the Rs 4 per share premium is treated in the company's books?
The premium of Rs 4 per share is credited to Securities Premium Account. It is a capital receipt over and above face value, so it is not share capital or income, and it is shown under Reserves and Surplus in Other Equity.
- ACredited to Securities Premium AccountCorrect
- BCredited to Equity Share Capital Account
- CCredited to Statement of Profit and Loss as income
- DCredited to General Reserve
Explanation
Any amount received in excess of the face value of shares is a premium and is credited to Securities Premium Account, which is shown under Other Equity (Reserves and Surplus). It is a capital receipt, not income. Crediting it to Share Capital would overstate the paid-up capital, which is limited to face value.
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