Calculating Premium in Shares Issuance

When a company invites applications for the issuance of shares, it may offer them at a premium. The premium is an additional amount charged over the face value of the shares, and it represents the perceived value or attractiveness of the shares to potential investors. In this scenario, A Ltd. has invited applications for 50,000 equity shares with a face value of Rs10 each at a premium of 10%.

Understanding the Premium Calculation

To calculate the premium, we need to determine the additional amount charged per share, which is 10% of the face value. Here's how it can be calculated:

1. Find the premium per share:
- Face value of each share = Rs10
- Premium percentage = 10%
- Premium per share = Face value * (Premium percentage/100) = 10 * (10/100) = Rs1

Example Calculation

Let's consider an example to illustrate the calculation:

- Number of equity shares applied for = 50,000
- Face value of each share = Rs10
- Premium percentage = 10%
- Premium per share = Rs1

To determine the total amount payable by the applicant, we need to consider both the face value and the premium. Here's how it can be calculated:

2. Calculate the amount payable per share:
- Amount payable per share = Face value + Premium per share = Rs10 + Rs1 = Rs11

3. Calculate the total amount payable by the applicant:
- Total amount payable = Amount payable per share * Number of shares applied for = Rs11 * 50,000 = Rs550,000

Therefore, the total amount payable by the applicant for 50,000 equity shares at a premium of 10% is Rs550,000.

Conclusion

In this type of question, the premium can be calculated by determining the additional amount charged per share, which is a percentage of the face value. By adding the premium to the face value, the total amount payable per share can be found. Multiplying this amount by the number of shares applied for will give the total amount payable by the applicant.