When shares are issued at a premium above nominal value, the excess amount is recorded in which reserve?

• A. Share premium reserve
• B. Capital reserve
• C. Revenue reserve
• D. Revaluation reserve

Answer: (A)

When shares are issued above their nominal value, the extra amount received is treated as additional paid-in capital and placed in the share premium reserve (also called securities premium reserve in some frameworks). The nominal value of the shares goes into the share capital account, while the excess over par increases the share premium reserve. This is an equity reserve created from a capital transaction, not from profits, so it’s not a revenue reserve and not a revaluation reserve. The share premium reserve remains part of shareholders’ funds and is typically subject to statutory restrictions on use (for example, it can be used for issuing fully paid bonus shares or for certain set purposes rather than paying dividends). Journal-wise, the company records the total cash received, credits the share capital for the par value, and credits the share premium reserve for the premium amount.