Total purchase price of machine = Rs. 3,80,000
Cash paid at the time of purchase = Rs. 20,000
Balance amount to be settled by issuing shares = Rs. 3,80,000 - Rs. 20,000 = Rs. 3,60,000
Face value of each share = Rs. 100
Shares are issued at 20% premium, which means the issue price will be higher than face value.
Premium per share = 20% of Rs. 100 = Rs. 20
Issue price per share = Face value + Premium = Rs. 100 + Rs. 20 = Rs. 120
Number of shares to be issued = Issue price per shareBalance amount to be paid
Number of shares = 1203,60,000 = 3,000 shares
When shares are issued at a premium, each share brings in more cash than its face value. Here, though the face value is Rs. 100, the company receives Rs. 120 per share, which means fewer shares need to be issued to settle the balance amount.