Plz help me with differences between Issue price and premium of shares...

vipins · #1 20th June 2008, 06:46 PM

Hi,
I want to know the differences between face value and premium of shares, for example DLF had a face value of Rs:2 and issue price of 525, but when we check the Book Value of DLF we can see 19.23. When I searched net for knowing its details I found that there is a share premium account where the premium of shares will go into and only the Rs:2 that we gave actually adds up to the total equity capital. I am totally confused can someone help me with these terms.

Ramjaane · #2 21st June 2008, 01:04 PM

Issue at Face Value:
The nominal value of the share, assigned to it by the issuer, is called the Face Value or Par Value. It is the original cost shown on the share certificate and the extent to which the shareholder is liable to the company. In case of equity shares, the value is generally quite small; for instance Rs 1, Rs 2, Rs 5, Rs 10 etc. Hence, if shares are offered at this value then it is said they are being offered at Face Value or at Par.

Issue at a premium or at a discount:
When shares are offered at more than the Face Value, then it is said that the issue is at a premium. The premium is the amount charged over the Face Value. Conversely, if shares are offered at a price lower than Face Value, then the issue is at a discount. The difference between the Face Value and the Offer Price is the discount.

Book value per share: The accounting value of a share of common stock, determined by dividing the company's net worth by the number of shares that are circulating.

Share prices are determined by simple supply and demand. If there are no buyers at a particular level, the share price will fall to attract buyers. The same applies to sellers. For instance, if the share price is 95 to 100 and there are only sellers at 98, the market maker will try and move the price up to 98 to 103 so that he can accommodate his seller.

vipins · #3 22nd June 2008, 08:39 PM

Quote:

Originally Posted by Ramjaane

Issue at Face Value:
The nominal value of the share, assigned to it by the issuer, is called the Face Value or Par Value. It is the original cost shown on the share certificate and the extent to which the shareholder is liable to the company. In case of equity shares, the value is generally quite small; for instance Rs 1, Rs 2, Rs 5, Rs 10 etc. Hence, if shares are offered at this value then it is said they are being offered at Face Value or at Par.

Issue at a premium or at a discount:
When shares are offered at more than the Face Value, then it is said that the issue is at a premium. The premium is the amount charged over the Face Value. Conversely, if shares are offered at a price lower than Face Value, then the issue is at a discount. The difference between the Face Value and the Offer Price is the discount.

Book value per share: The accounting value of a share of common stock, determined by dividing the company's net worth by the number of shares that are circulating.

Share prices are determined by simple supply and demand. If there are no buyers at a particular level, the share price will fall to attract buyers. The same applies to sellers. For instance, if the share price is 95 to 100 and there are only sellers at 98, the market maker will try and move the price up to 98 to 103 so that he can accommodate his seller.

Thank you,
But my doubt is that,is the premium given by us get added into the book value of the shares or is it kept separately for some other purposes, I mean does the premium given by us get add up with the net asset of the company, if not then what is the need for companies to ask high premium for there IPOs.

rvm123 · #4 29th June 2008, 08:52 PM

yes, the premium paid by the shareholders will be added to the reserves and surplus. book value of any share is nothing but [(reserves and surplus) / (number of shares) X face value of the share] + face value of the share

columbus · #5 29th June 2008, 09:29 PM

Quote:

Originally Posted by vipins

Thank you,
But my doubt is that,is the premium given by us get added into the book value of the shares or is it kept separately for some other purposes, I mean does the premium given by us get add up with the net asset of the company, if not then what is the need for companies to ask high premium for there IPOs.

Often we heard that a particular share is available at DISCOUNT/PREMIUM. Basically when referring to STOCK FUTURES these terms are used. Say for eaxmple DLF JUNE-series ended with price Rs 450 and JULY series started with Rs 425 then we say DLF is availble at Rs 25/- discount.On other hand if July series started with 475/- then we say DLF is availble at 25/- premium.

During IPO all issues are offered with PREMIUM only ,in general.Hence the question of discount rarely arises.