A company bought back 5,000 of its own shares at ₹15 per share and later reissued them at ₹18 per share. Compute the effect on the Share Premium account on reissue.
Answer
₹15,000 credited to Share Premium
The correct answer is ₹15,000 credited to Share Premium — Hence ₹15,000 is credited to Share Premium.
Step-by-step solution
- Cost of buyback = 5,000 × ₹15 = ₹75,000.
- Proceeds from reissue = 5,000 × ₹18 = ₹90,000.
- Difference = ₹90,000 – ₹75,000 = ₹15,000.
- This difference increases Share Premium by ₹15,000 on reissue.
- Hence ₹15,000 is credited to Share Premium.
Common mistake: Ignoring the difference between buyback and reissue prices
Concept tested: Buyback and reissue effect
Published · How this solution was prepared and checked
← All Accounting for Share Capital questions