How to Calculate Share Premium

A share premium is the difference between the issue price and the nominal value of the share, i.e., market value less par value.

Learn how to calculate the share premium with the following examples:

(1) CC Company issued 250,000 shares for $1 each (nominal value) when it was formed 5 years ago. Today, the company has a market value of $1,000,000. Then, the market value of each unit of equity is = $1,000,000 / 250,000 = $4. Share premium = market value - nominal value = 4 - 1 = $3.

(2) QQ Company has an opening balance of share capital $200,000 and share premium $2,000. During the year, 35,000 ordinary shares of $1 were issued payable in installment (see below):
- On application $0.55
- On allotment (including share premium $0.20) $0.30
- On final call $0.35
Calculate the closing balance on the share premium account.

Solution:
The share premium on the shares issued is = 35,000 * $0.20 = $7,000
Total share premium (closing balance) = 2,000 + 7,000 = $9,000

* Next: How to Calculate Interim Dividend
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