A share premium account is a type of business account that is often included on a company balance sheet. The purpose of the account is to provide a means of posting payments received by a shareholder for shares issued, when those payments exceed the actual cost of the share. The funds that are maintained in a share premium account can be used for a variety of purposes, such as underwriting costs or for issuing bonus shares to current shareholders.
The funds that are accounted for in a share premium account come about when there is a difference between the nominal value or price of the shares and the subscription price that is paid by the shareholder. For example, if the nominal value of the share is $10 US dollars (USD), and the subscription price for that same share is $20 USD, then the difference between the two figures, or $10 USD, is posted to the share premium account.
Just about any company that is capable of issuing shares of stock will have provisions for a share premium account included in their general accounting records. The usual approach is to include the account on the company balance sheet, clearly accounting for those funds while still keeping them separated from other line items in the accounting books. This arrangement makes it relatively easy to track any deposits or disbursements from the account, simply by noting the change in the balance from one calendar month to the next.
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