Himalayan Co. Share Issue: Premium & Payment Schedule

Oct 12, 2025 by ADMIN 54 views

Himalayan Company Share Issue: Premium & Payment Schedule

Hey guys! Let's dive into a fascinating accountancy scenario involving Himalayan Company's share issuance. We're going to break down the details of their public offering, focusing on the share price, premium, and the payment schedule. Understanding these concepts is super important for anyone interested in finance and investing. So, buckle up, and let's get started!

Understanding the Share Issue

Okay, so Himalayan Company decided to issue 40,000 shares to the public. Each share has a face value of ₹100. Think of this face value as the intrinsic worth of the share, the baseline price that the company assigns. Now, here's where it gets interesting: they're issuing these shares at a 20% premium. What does that mean? A premium is basically an extra amount added to the face value, reflecting the market's perception of the company's worth, its growth potential, and overall investor demand. In simpler terms, investors are willing to pay more than the face value because they believe in the company's future success. The company is asking for an additional 20% on top of the ₹100 face value. This 20% premium translates to ₹20 (20% of ₹100). So, the total issue price per share is ₹120 (₹100 face value + ₹20 premium). This premium is a crucial aspect of the share issuance process, and it's essential to understand why companies charge a premium. It's often a sign of a strong and healthy company with good prospects. The premium collected is usually recorded separately in the company's books, often in a Securities Premium Reserve, and it can only be used for specific purposes as defined by the Companies Act. Understanding the rationale behind the premium and its accounting treatment is vital for interpreting a company's financial statements and assessing its financial health. Remember, this premium reflects investor confidence and the market's assessment of the company's future potential. So, keeping this in mind, let’s move on to how the company plans to collect this money from the public.

Breaking Down the Payment Schedule

The total amount due from each share is ₹120, right? But Himalayan Company isn't asking investors to pay the entire sum upfront. Instead, they've structured a payment schedule, breaking it down into installments. This is a pretty common practice, as it makes it easier for investors to manage their cash flow and participate in the offering. Let's look at the installments:

On Application: ₹30 - This is the initial amount investors need to pay when they apply for the shares. It shows their intent to invest and secures their application. Think of it as a booking fee. The application money is a part of the overall share price, and it's the first step in the payment process. It's crucial for companies to set this amount appropriately, as it needs to be high enough to deter frivolous applications but also accessible to attract a wide range of investors. The amount collected on application gives the company an initial idea of the subscription levels and the overall demand for the shares. If the applications received are more than the shares offered, it indicates an oversubscription, which can be a good sign for the company. Conversely, if the applications are less than the shares offered, it indicates an undersubscription, which might require the company to take further steps to attract investors.
On Allotment: ₹50 (including premium) - This is the next installment, and it's where the premium comes into play. Remember that ₹20 premium we talked about? It's included in this ₹50. Allotment is when the company officially assigns the shares to the successful applicants. Allotment money is a significant portion of the total share price, and it's usually due soon after the allotment process is finalized. The inclusion of the premium in the allotment money reflects the market value of the shares and the investors' willingness to pay a premium for them. The company needs to carefully manage the allotment process to ensure fairness and transparency. Oversubscription can lead to a complex allotment process, where the company might need to reduce the number of shares allotted to each applicant or even reject some applications altogether. Understanding the allotment process and the accounting treatment of the premium is essential for both investors and accountants.
On First Call: ₹30 - A call is simply a request from the company to shareholders to pay a part of the remaining amount. This is the first time Himalayan Company is making such a request. The first call is another installment payment that shareholders need to make as per the company's schedule. The call money is used to fund the company's operations and expansion plans. Companies typically make calls when they need additional funds for specific projects or to meet their working capital requirements. The amount of the first call is determined by the company based on its financial needs and the overall payment schedule. Shareholders are obligated to pay the call money within the stipulated time frame, and failure to do so can result in penalties or even forfeiture of shares. Understanding the concept of calls and the obligations associated with them is crucial for shareholders. The company needs to ensure that the call money is collected efficiently and effectively to avoid any financial disruptions.
On Final Call: ₹10 - This is the last installment, the final call for payment. Once this is paid, the shareholders have fully paid for their shares. The final call represents the last portion of the share price that shareholders need to pay. It's the culmination of the payment process and signifies the full realization of the company's capital. The amount of the final call is usually smaller than the previous installments, as it represents the remaining balance. Once the final call is made and paid, the shares are considered fully paid up, and the shareholders have no further payment obligations. The company needs to maintain accurate records of all calls made and payments received to ensure proper accounting and compliance. The final call is a significant event in the share issuance process, as it marks the completion of the capital raising exercise.

This phased payment approach allows the company to collect funds as needed, aligning with their project timelines and financial requirements. It also gives investors the flexibility to pay in installments, making the investment more accessible. So, that's how Himalayan Company is structuring the collection of money for their share issuance. Breaking it down like this makes it easier to understand, right?

Money Collection Process: A Closer Look

Now, let's zoom in on how this money is actually collected. The process typically involves several steps, and it's crucial for companies to manage it efficiently to ensure smooth operations and maintain investor confidence. First, potential investors submit their applications along with the application money. This can be done through various channels, such as online platforms or physical forms, depending on the company's chosen method. The company then reviews these applications and allots shares to successful applicants. This allotment process needs to be fair and transparent, especially in cases of oversubscription. Once the shares are allotted, the company sends out allotment notices to the successful applicants, informing them of the number of shares allotted and the amount due on allotment. Investors then need to pay the allotment money within the stipulated time frame. Subsequently, the company makes calls for the remaining installments, usually as and when they need the funds. Each call is announced with a notice specifying the amount due and the payment deadline. Shareholders are required to pay the call money within the given time frame, and the company keeps track of all payments received. Failure to pay can lead to penalties or even forfeiture of shares, as we discussed earlier. The entire money collection process needs to be well-organized and documented to ensure accurate accounting and compliance with regulations. Companies often use technology and specialized software to manage this process efficiently. Clear communication with investors is also crucial, keeping them informed about the payment schedule and any relevant updates. By managing the money collection process effectively, companies can ensure a smooth capital raising exercise and maintain positive relationships with their shareholders.

In Conclusion

So, there you have it! We've taken a deep dive into Himalayan Company's share issuance, looking at the premium, the payment schedule, and the money collection process. Understanding these aspects is fundamental to grasping the dynamics of share offerings and the world of corporate finance. Remember, investing in shares involves understanding the company's financials, its growth potential, and the terms of the share issuance. By breaking down complex scenarios like this, we can make finance less intimidating and more accessible to everyone. Keep learning, keep exploring, and you'll become a finance whiz in no time! If you have any questions, drop them in the comments below. Let's keep the conversation going!