How to record a share issue

Step by step

1. Record the cash received. Debit the bank with the total amount received for the shares.
2. Credit share capital at nominal value. Credit ordinary share capital with the number of shares times their nominal value.
3. Credit share premium with the excess. Credit share premium with any amount received above nominal value.
4. Check the split adds up. Share capital plus share premium should equal the total received.
5. Show both in equity. Both appear under shareholders' funds in the statement of financial position.

Worked example

100,000 shares of RM1 issued at RM1.50 raise RM150,000. That is RM100,000 share capital and RM50,000 share premium.

Understanding the method

A share is a unit of ownership with a fixed nominal (par) value, such as RM1. When a company issues shares, it receives cash and gives investors a stake in the business. So the company gains an asset, usually money in the bank, and its equity rises.

Shares are often issued at a premium. Investors pay more than the nominal value because the shares are thought to be worth more. The nominal value is credited to share capital.

The excess is credited to a separate share premium account. Share premium is a capital reserve with restricted uses, so it cannot be paid out as ordinary profit.

Read the question for three quantities: the number of shares, their nominal value and the issue price. Total cash received = number of shares × issue price.

Share capital = number of shares × nominal value. Share premium = the difference, which equals number of shares × premium per share.

Here is a worked case. A company issues 100,000 ordinary shares of RM1 at RM1.30, with all money received in full. Cash received is 100,000 × 1.30 = RM130,000, which is debited to bank.

Share capital is 100,000 × 1 = RM100,000. Share premium is 100,000 × 0.30 = RM30,000.

The journal is: debit Bank RM130,000, credit Ordinary Share Capital RM100,000 and credit Share Premium RM30,000. The two credits add up to the single debit.

To check, work out the premium two ways: total cash minus nominal capital, and premium per share times number of shares. Share capital should hold only the nominal value of shares in issue, never the full cash received. In the statement of financial position, both accounts appear in equity and the extra bank balance appears in current assets.

Common mistakes: crediting all the cash to share capital, and treating the premium as income in the income statement (it is a capital reserve in equity). Others are crediting the bank as though cash were leaving, and creating a share premium account when shares are issued at par.

Check your board before you practise this. The Cambridge 2026 syllabus excludes share premium, and the 2027 to 2029 syllabus does not repeat that exclusion. The Edexcel 4AC1 content list does not include limited company statements.

If you are unsure how to split a share issue between capital and premium, we can help. One of our teachers can work through a few issue prices with you and check your journal entries. Book a trial class

Related skills

• How to prepare a limited company appropriation
• How to prepare a statement of financial position
• How to write a journal entry

The methods here are standard accounting practice, with original figures. For your exam board's exact requirements, see exam boards and Sources.