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What is the reason why shares are issued at premium and not crank up the entire value to just face value?

Accountancy

For example why is it 100 + 20 premium and not just 120 face value?

Kishore Anil

CA Inter

★ 2K+

31-Jan-21 09:35

329

Answers (1)

Best Answer

two reasons - a class of shares should have same face value. if you keep changing FV for every new issue - you will have to issue multiple classes - will be a nightmare to handle so many classes, identify their rights - Share premium can be used for several other purposes ( w/ o of discounts on debentures etc) without any major process but equity capital cannot be used to write off - reduction of capital is a painful process.