Question

A company purchased machinery for ₹18,00,000 and in consideration issued shares at 20% premium. What will be the face value of shares issued?

• A. ₹21,60,000
• B. ₹18,00,000
• C. ₹14,40,000
• D. ₹15,00,000

Hint:

When shares are issued at a premium, the total amount raised includes both the face value and the premium. The face value is calculated by dividing the total amount by \( 1 + \text{Premium rate} \).

Answer 1

The Correct Option is D

Step 1: Understanding the problem.
The company purchased machinery for ₹18,00,000 and issued shares at a 20% premium. The premium is calculated on the face value of the shares. Let the face value of the shares be \( x \). The total amount received from issuing shares is: \[ \text{Total amount} = \text{Face value} + \text{Premium} \] \[ \text{Total amount} = x + 0.20x = 1.20x \] Step 2: Calculate the face value.
We are given that the total amount received is ₹18,00,000, which equals \( 1.20x \). Therefore, \[ 1.20x = 18,00,000 \] \[ x = \frac{18,00,000}{1.20} = 15,00,000 \] Step 3: Conclusion.
The face value of the shares issued is ₹15,00,000.