Issue of Shares at Premium

A company whose shares are in strong demand may issue them at a premium — that is, for a price higher than the face (nominal) value. Section 52 of the Companies Act, 2013 governs the accounting for this premium.

The accounting rule. The excess received over the face value is not treated as part of Share Capital — crediting it there would misstate the company's real share-capital figure. Instead, it is credited to a separate account, the Securities Premium Account (shown under 'Reserves and Surplus' in the Balance Sheet). The premium is usually collected along with the allotment money, though a company may instead collect it with the application money or with a call — the standard MSBSHSE textbook problems collect it with allotment.

Illustrative entry (premium collected with allotment). Suppose a share of face value ₹10 is issued at a premium of ₹2, and the total allotment instalment (face value portion + premium) is ₹5 per share:

The subsequent 'Bank A/c ...Dr To Share Allotment A/c' receipt entry is unchanged in form — only the Share Allotment A/c's own debit already carries the premium bundled in.

Permitted uses of the Securities Premium Account (Section 52(2)). Once credited, the Securities Premium Account cannot be used as if it were ordinary trading profit or distributed as a cash dividend. The Act restricts it to specific purposes only:

1. Issuing fully paid bonus shares to members.
2. Writing off the company's preliminary expenses. …