A Level Accounting (9706)•9706/11/M/J/18
Explanation
Share premium as a capital transaction
Steps:
- Issuing shares at premium means cash received exceeds nominal value; excess is share premium.
- Nominal value credits share capital account.
- Premium credits capital reserve, a non-current liability.
- Total cash inflow boosts net assets and working capital, but share issuance is not revenue.
Why C is correct:
- Profit for the year reflects operating results in the income statement; share premium is a capital transaction under accounting standards (e.g., IAS 32), excluded from profit calculation.
Why the others are wrong:
- A: Capital reserves directly increase by the premium amount recorded.
- B: Net assets rise by the full cash proceeds from the issuance.
- D: Working capital improves via the cash inflow to current assets.
Final answer: C
Topic: Preparation of financial statements
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