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Why share premium remains the same between date of acquisition & reporting date

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Why share premium remains the same between date of acquisition & reporting date

  • This topic has 5 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • March 10, 2015 at 4:00 pm #231905
    Anonymous
    Inactive
    • Topics: 43
    • Replies: 124
    • ☆☆

    Hi Mister,

    I am bit confused about the value of share premium in that why it remains the same at the date of acquisition and the date of reporting, according to Kaplan’s text book in W2 Net assets of subsidiary? I saw that they seem to cancel each other post acquisition.

    Thank you.

    March 10, 2015 at 8:06 pm #231924
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    The share premium amount arises on the issue of shares by a company for a value in excess of the shares’ nominal value

    At F7 level, the subsidiary will NOT issue any shares subsequent to acquisition by the parent and that’s why the balance on the subsidiary’s share premium account will be the same as it was as at date of acquisition

    Ok?

    March 11, 2015 at 1:58 am #231941
    Anonymous
    Inactive
    • Topics: 43
    • Replies: 124
    • ☆☆

    @mikelittle said:
    The share premium amount arises on the issue of shares by a company for a value in excess of the shares’ nominal value

    At F7 level, the subsidiary will NOT issue any shares subsequent to acquisition by the parent and that’s why the balance on the subsidiary’s share premium account will be the same as it was as at date of acquisition

    Ok?

    Hmm, seems I got a wrong definition about share premium. I thought the premium is the value between the share’s face value and current market price, and I was thinking the market price is fluctuating all the time, shouldn’t the premium be so. Seems I need to revisit F4.

    While we are on this particular note, what will be the effect on SFP for the situation where share market price differs from the norminal value on the reporting day?

    Thanks.

    March 11, 2015 at 8:31 am #231962
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    Hi, good idea to revisit F4 🙂

    Your second paragraph? Absolutely no affect whatsoever! The shares, once they are issued, belong to the shareholders and the company has no further interest in them (in theory)

    Shareholders buy their shares and the company owes these shareholders money so, as a liability, the shares and the premium are shown on the statement of financial position in the equity section at the value received by the company upon the event of issuing those shares.

    The market value? Imagine that you have bought a collection of cigarette cards and there is an active market in buying and selling those cigarette cards. Sometimes the value goes up and sometimes down. But what interest has British American Tobacco or Philip Morris have in the market value? None

    What interest does British Telecom have in the market value of shares issued by them 30 years ago? None

    Ok?

    March 11, 2015 at 9:50 am #231975
    Anonymous
    Inactive
    • Topics: 43
    • Replies: 124
    • ☆☆

    @mikelittle said:
    Hi, good idea to revisit F4 🙂

    Your second paragraph? Absolutely no affect whatsoever! The shares, once they are issued, belong to the shareholders and the company has no further interest in them (in theory)

    Shareholders buy their shares and the company owes these shareholders money so, as a liability, the shares and the premium are shown on the statement of financial position in the equity section at the value received by the company upon the event of issuing those shares.

    The market value? Imagine that you have bought a collection of cigarette cards and there is an active market in buying and selling those cigarette cards. Sometimes the value goes up and sometimes down. But what interest has British American Tobacco or Philip Morris have in the market value? None

    What interest does British Telecom have in the market value of shares issued by them 30 years ago? None

    Ok?

    Got it. Thank you.

    March 11, 2015 at 10:13 am #231983
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    You’re welcome

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