When a company has a good reputation and earns good profits, the demand of its shares increases in the market. In that case, the company is allowed by the Companies Ordinance 1984, to issue shares at a higher price than their face value. Such an issue is called “Shares Issued at Premium”. The amount received; in excess of the face value of the shares is transferred to an account called “Share Premium Account”. This account is used to:
- Write off Preliminary Expenses of the company.
- Write off the balance amount, in issuing shares on discount.
- Issue fully paid Bonus Shares