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What is the reason for having separate share capital and share premium accounts?

mgemge Feels At HomeRegistered Posts: 94
What is the reason for having separate share capital and share premium accounts? Would it not be easier to amalgamate these into one account?

I understand how to allocate equity between the two accounts, but am not really sure of the reason for having both accounts. Why is it important to know the total nominal value of the shares issued? The nominal value seems fairly irrelevant.

Any help is much appreciated.

Comments

  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    I don't know, but Steve Collings wrote an excellent article on AccountingWeb on how to account for them properly recently. I can't explain it, but I am sure his article will make it clear!
  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    Monsoon wrote: »
    I don't know, but Steve Collings wrote an excellent article on AccountingWeb on how to account for them properly recently. I can't explain it, but I am sure his article will make it clear!

    Thank you Monsoon!! :)

    I certainly did write about this. I covered it in a series of Q&A for Accountingweb and the said article can be found here

    Best wishes
    Steve
  • MonsoonMonsoon Font Of All Knowledge FMAAT, AAT Licensed Accountant Posts: 4,071
    Thanks for the link Steve!

    The client in question who generated my interest in the issue has just come back to me with clarification on rights ascribed to which shares, so I will be referring to it muchly next week to finish their accounts!! ;)
  • mgemge Feels At Home Registered Posts: 94
    Many thanks for the replies. However, I registered for Accountingweb and had a look at the link above, and am still uncertain as to the reason for separate accounts.
  • AK002AK002 Font Of All Knowledge Registered Posts: 2,492
    Is it not something as simple as so you can see the amount over and above the share price that people were willing to pay? (I could be wrong...)
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    AK002 wrote: »
    Is it not something as simple as so you can see the amount over and above the share price that people were willing to pay? (I could be wrong...)

    I believe so, and can work out the Qty of shares from the capital account and therefore % of ownership by different parties. Throw that into one account and it'd be confusing!
  • mgemge Feels At Home Registered Posts: 94
    Thanks for that. That makes sense :)
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