When a company issues shares at a premium, what must it do with the premium amount?

Answer options:

Distribute it immediately as a dividend to existing shareholders.

Transfer it to a share premium account, which has restricted uses.

Use it to pay off the company's unsecured creditors.

Credit it to the profit and loss account as trading revenue.

How to approach this question

Recall the statutory rules regarding the share premium account.

Full Answer

B.Transfer it to a share premium account, which has restricted uses.✓ Correct

Under the Companies Act 2006, any amount paid for shares above their nominal value must be transferred to a share premium account. This account is strictly regulated and can only be used for specific purposes, such as issuing fully paid bonus shares.

Common mistakes

Thinking share premium can be used to pay dividends.

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Practice the full ACCA LW — Corporate and Business Law Practice Exam 1

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When a company issues shares at a premium, what must it do with the premium amount?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA LW — Corporate and Business Law Practice Exam 1

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