The share premium is defined as:

The share premium is defined as:

• A. The nominal value of the share
• B. The excess of issue price over nominal value
• C. The total consideration received for the shares including premium
• D. The amount of profits retained in the business

Answer: (B)

The share premium is the amount by which the issue price of a share exceeds its nominal (par) value. When a company issues shares above par, the extra amount is recorded in a separate capital reserve called the share premium account. This is not a part of profits or retained earnings and it isn’t the total cash received for the shares—that total equals the nominal value plus the premium. For example, if a share with a par value of 1 is issued at 5, the share premium is 4. The share premium reflects financing raised from shareholders above the par value, not the company’s operating profits.

The share premium is the amount by which the issue price of a share exceeds its nominal (par) value. When a company issues shares above par, the extra amount is recorded in a separate capital reserve called the share premium account. This is not a part of profits or retained earnings and it isn’t the total cash received for the shares—that total equals the nominal value plus the premium. For example, if a share with a par value of 1 is issued at 5, the share premium is 4. The share premium reflects financing raised from shareholders above the par value, not the company’s operating profits.