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

mge

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.

Monsoon

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 Collings

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

Monsoon

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!!

mge

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.

AK002

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...)

PGM

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!

mge

Thanks for that. That makes sense