A company issued to shareholders 1,000,000 shares with a nominal value of €1 each at a price of €1.50 each. How is the €1,500,000 capital raised shown in the company's balance sheet?

• A. €1,500,000 is shown as issued share capital.
• B. €500,000 is shown as issued share capital and €1,000,000 is shown as a reserve.
• C. €1,000,000 is shown as issued share capital and €500,000 is shown as a reserve.
• D. €1,500,000 is shown as a reserve.

Answer: (C)

When shares are issued at a premium, the nominal value of the shares goes into issued share capital, while the excess over nominal value is placed in a share premium reserve. In this case, issuing 1,000,000 shares with a €1 nominal value yields €1,000,000 of issued share capital. The issue price is €1.50, so the premium is €0.50 per share, totaling €500,000, which is recorded as a reserve (share premium). The total funds raised are €1,500,000, but the balance sheet shows €1,000,000 as issued share capital and €500,000 as a reserve.