When company issues the shares, it has to fix the price of per share. If the face value and issue price per share will equal, then it is called that shares have been issued at par. Issue price will not always equal to the face value per share. If issue price is more than face value, then shares will be issue at premium. If issue price is less than face value, then shares will issue at discount.
In simple word, if you want to understand the issue of shares at par, you have to understand the face value of per share. Concept of face value came from currency. In the beginning of time, we used Gold Currency. Because Gold was cheap. Market fixed the price of Gold and printed $ 1 on the Gold Coin. It was its face value, but after sometime, Gold's price increased. Same 1$ Gold Coin's value became 200 $ current paper currency. Still face value of 1 $ Gold coin is $ 1 but market value is different. Like this, each share's face value is fixed by company and other outside factors. When it fixes, a company can issue his share on this price or less than this price or more than this price. If face value per share and issue price per share will equal then it will be issue of share at par.
In accounting treatment, when we see par value. For example, it is $ 100. Now, classify this money in application money, allotment money and call money. For example, we have to take $ 50 at the time of application. It will be application money. If we have to take $ 25 per share at the time of allotment of shares, we will say it allotment money per share. If we have to take balance in call, then balance $ 25 per share will be call money.
We can also say the issue of shares at par as issue of shares at stated value or at nominal value. If shares are issued at premium or at discount, but both will not become the part of share capital. We will open the stock premium account if shares are issued at premium. Same premium is used for written off the capital losses.
Like this, we will open discount on issue of share account when shares are issued on discount. Same discount is shown as dead asset and written off with premium.
In simple word, if you want to understand the issue of shares at par, you have to understand the face value of per share. Concept of face value came from currency. In the beginning of time, we used Gold Currency. Because Gold was cheap. Market fixed the price of Gold and printed $ 1 on the Gold Coin. It was its face value, but after sometime, Gold's price increased. Same 1$ Gold Coin's value became 200 $ current paper currency. Still face value of 1 $ Gold coin is $ 1 but market value is different. Like this, each share's face value is fixed by company and other outside factors. When it fixes, a company can issue his share on this price or less than this price or more than this price. If face value per share and issue price per share will equal then it will be issue of share at par.
In accounting treatment, when we see par value. For example, it is $ 100. Now, classify this money in application money, allotment money and call money. For example, we have to take $ 50 at the time of application. It will be application money. If we have to take $ 25 per share at the time of allotment of shares, we will say it allotment money per share. If we have to take balance in call, then balance $ 25 per share will be call money.
We can also say the issue of shares at par as issue of shares at stated value or at nominal value. If shares are issued at premium or at discount, but both will not become the part of share capital. We will open the stock premium account if shares are issued at premium. Same premium is used for written off the capital losses.
Like this, we will open discount on issue of share account when shares are issued on discount. Same discount is shown as dead asset and written off with premium.
Dear Mr.Kumar:
ReplyDeleteRegarding values of share:
a) Face value: means nominal value as stated on the share certicate?
b) Issue price: means market value?
Thanks in advance for your comments.
Best Regards,
quite a gud explanation on shares at par value.
ReplyDelete