Examples
For example, a company issues 100 ordinary shares of a nominal value of $1 each at a subscription price of $4 per share. The $300 difference will go to the share premium account.
At the same time, the company issues 50 preference shares with a par value of $0.5. These shares are bought by investors for $1 each.
The firm's balance sheet at this point consists of only four items:
Assets:
- Cash: $450
Liabilities:
- Nil
Shareholders' equity:
- Common stock: $100
- Preference stock: $25
- Share premium: $325
SPA = Number of new shares issued x (issue price - par value)
Read more about this topic: Capital Surplus
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