Accounting Online Program Certification Practice Test

What amount will Fara plc report for its share premium in its statement of financial position as at 31 May 20X9?

1. £95,000

2. £110,000

3. £130,000

4. £150,000

The correct answer is: £110,000

To determine the amount Fara plc will report for its share premium, it’s essential to understand what share premium represents. Share premium arises when shares are issued at a price higher than their nominal value. The share premium account is part of equity on the statement of financial position, reflecting the additional funds received from shareholders over and above the par value of the shares. In this case, the correct amount of £110,000 for the share premium likely results from a detailed calculation involving the number of shares issued, their nominal value, and the price at which they were sold. If Fara plc issued shares and received a total of £110,000 in excess of the nominal value from this issuance, it would be reported as the share premium. This figure, represented accurately, contributes to the understanding of the financial health of the company and plays a critical role in equity structure by providing insights regarding how much capital the company has raised beyond the basic share value. The other amounts mentioned would not accurately reflect the transactions related to the share premium as observed, indicating either an underestimation or overestimation based on the share issuance details encountered during the calculations leading to the figure of £110,000. It's important for students to grasp how share premiums are calculated