A company bought back 4,000 of its own shares at ₹20 each. Later it reissued 2,500 of those shares at ₹22 each and 1,500 at ₹18 each. What is the net effect on the Share Premium account after the reissue?
Answer
₹2,000 credit
The correct answer is ₹2,000 credit — Net effect = ₹5,000 credit – ₹3,000 debit = ₹2,000 credit
Step-by-step solution
- Buyback at nominal ₹20: no effect on share premium
- Reissue 2,500 at ₹22: premium ₹2 per share → ₹5,000 credit
- Reissue 1,500 at ₹18: discount ₹2 per share → ₹3,000 debit
- Net effect = ₹5,000 credit – ₹3,000 debit = ₹2,000 credit
Common mistake: Ignoring buyback effect on premium
Concept tested: Effect of reissue on share premium
Published · How this solution was prepared and checked
← All Accounting for Share Capital questions