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Premium received on issue of shares are shown under the head ______ in Balance Sheet :
- a)Reserve and Surplus
- b)Current liabilities and Provisions
- c)Share Capital
- d)Contingent Liabilities
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
Premium received on issue of shares are shown under the head ______ in...
Reserves are the funds earmarked for a specific purpose, which the company intends to use in future
Surplus is where the profits of the company reside. This is one of the points where the balance sheet and the P&L interact. Dividends are paid out of the surplus
Shareholders’ equity = Share capital + Reserves + Surplus. Equity is the claim of the owners on the assets of the company. It represents the assets that remain after deducting the liabilities. If you rearrange the Balance Sheet equation, Equity = Assets – Liabilities.
Most Upvoted Answer
Premium received on issue of shares are shown under the head ______ in...
Answer:
The correct answer is option 'A' - Reserve and Surplus.
Explanation:
When a company issues shares at a price higher than their face value, the excess amount is known as the premium. This premium is received by the company and is recorded in the books of accounts. The premium received on the issue of shares represents the additional amount that shareholders are willing to pay for the shares.
The premium received on the issue of shares is shown under the head 'Reserve and Surplus' in the Balance Sheet. 'Reserve and Surplus' is a category that includes various reserves and profits of the company that are not distributed as dividends to the shareholders.
Reasons for showing premium under 'Reserve and Surplus':
Conclusion:
In conclusion, the premium received on the issue of shares is shown under the head 'Reserve and Surplus' in the Balance Sheet. This reflects the company's retained earnings, capitalization of profits, and financial strength.
The correct answer is option 'A' - Reserve and Surplus.
Explanation:
When a company issues shares at a price higher than their face value, the excess amount is known as the premium. This premium is received by the company and is recorded in the books of accounts. The premium received on the issue of shares represents the additional amount that shareholders are willing to pay for the shares.
The premium received on the issue of shares is shown under the head 'Reserve and Surplus' in the Balance Sheet. 'Reserve and Surplus' is a category that includes various reserves and profits of the company that are not distributed as dividends to the shareholders.
Reasons for showing premium under 'Reserve and Surplus':
- Retained Earnings: The premium received on the issue of shares is considered as part of the company's retained earnings. Retained earnings are the profits that are not distributed as dividends but are retained in the company to finance future growth or meet contingencies.
- Capitalization of Profits: The premium received on the issue of shares can also be considered as a capitalization of profits. By adding the premium to the company's reserves and surplus, the company is effectively reinvesting the excess amount received from shareholders back into its business.
- Financial Strength: Showing the premium under 'Reserve and Surplus' also reflects the financial strength of the company. It indicates that the company has been able to raise funds at a price higher than the face value of its shares, which can be seen as a positive sign by investors and stakeholders.
Conclusion:
In conclusion, the premium received on the issue of shares is shown under the head 'Reserve and Surplus' in the Balance Sheet. This reflects the company's retained earnings, capitalization of profits, and financial strength.
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Premium received on issue of shares are shown under the head ______ in Balance Sheet :a)Reserve and Surplusb)Current liabilities and Provisionsc)Share Capitald)Contingent LiabilitiesCorrect answer is option 'A'. Can you explain this answer?
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