It’s another question, which I have received in real life. As it happens, when I first started in accounting, it was somewhat a mystery to me as well. As the name suggests, it’s related to ‘share capital’ and any change within is related to any transaction with shares. But the question, why would someone create this premium, still remains.
In short the theory behind the ‘share premium’ is as follows: in case issuing new shares one can determine the face and the nominal value of a new share. The difference between is shown as a ‘share premium’. The reason why those two values differ and are essentially used comes from legal requirements and not in what you may be thinking now. By law no-one can oblige you to pay more than the nominal value stated but in case the face value or the price to be paid is determined by the shareholders to be different from the nominal value, it’s the amount that needs to be paid. Just for clarification, to put things into figures, if a nominal value of a share is 100 and the face value is 150, than the 150 is the amount that needs to be paid.
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Just the other day I was asked the following question ‘Why would a company want to give up its shares to someone else? It would lose control over itself.’ At first I was stunned. Never had I been asked such a question and never had I thought about this way. But to put that aside, if already one asked, there may be others out there with the same question. So I thought, I’ll give it a try and clarify the terms ‘share’ and ‘shareholders’ a bit.
To begin with the answer I’d like to state that ‘a company’ is not a physical person with its wills and wishes. A company is a legal body, which operates solely based on the actions performed by people. People are the ones who also ‘own’ the company.
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Statement of Changes in Owners Equity Template has a column called “Share Premium”. As the name suggests it relates to shares and hence share capital. Partly for this reason they are also shown next to each other in Statement of Changes in Equity Template. The questions you may be asking are “what is this premium?” and “how is it calculated?” How this is shown on the statement of changes in owners equity is shown in our template.
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Statement of Changes in Owners Equity Template includes a column labeled “Share Capital”. It’s a column where relatively few changes if any happen over the years. Usually the same amount is carried forward from one year to another and nothing is added or subtracted. But why is that? And most importantly what is share capital?
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Excel Statement of Changes in Owners Equity Template is something that has been prepared having most custom needs in mind. It’s subject to your own customization as well as design preferences, but all essential parts are covered. However, prior to making your changes it’s good to know a thing or two about the equity itself.
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