Mercury Ltd
Subject:FinancePrice:4.87 Bought7
Mercury Ltd. issues Rs. 10 shares at a premium of Rs. 90. Totally 1 million shares were issued and subscribed fully. Entire amount is collected. How this transaction will appear in the financial statements?
(A). Rs. 10 million as share capital in Balance Sheet and Rs. 90 million as income in Income Statement
(B). Rs. 10 million as share capital in Balance Sheet and Rs. 90 million as Reserves and Surplus in Balance Sheet
(C).Rs. 100 million as share capital in Balance Sheet
(D). Rs. 10 million as share capital in Balance Sheet, Rs. 80 million as Reserves and Surplus in Balance Sheet, and Rs. 10 million as income in Income Statement
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Answer:
Option (B) is the right answer
Step-by-step explanation
Mercury Ltd. issues Rs. 10 shares at a premium of Rs. 90. Totally 1 million shares were issued and subscribed fully.
Number of shares = 1 million
share capital = 10 x 1 million = Rs.10 million
Amount of premium = 90 x 1 million = Rs.90 million
Amount of premium is not the part of the share capital. It is actually a gain for the company. The company shows the credit balance of the securities premium A/c under the heading 'Reserve and Surplus' on the liabilities side of the Balance sheet.
Share capital shows in the balance sheet under the shareholder's equity Section.
