The building is purchased for Rs. 5,40,000 and payment is to be made by issuing shares.
When shares are issued at a premium of 20%, the issue price is higher than the face value.
Face value per share = Rs. 100
Premium = 20% of Rs. 100 = Rs. 20
Issue price per share = Face value + Premium = Rs. 100 + Rs. 20 = Rs. 120
To find the number of shares to be issued:
Number of shares = Issue price per sharePurchase consideration
Number of shares = 1205,40,000 = 4,500 shares
The key point to understand is that when shares are issued at a premium, the company receives more than the face value per share. Here, though each share has a face value of Rs. 100, the company receives Rs. 120 per share, so fewer shares need to be issued to settle the Rs. 5,40,000 liability.
Correct Option: 4 (4,500 shares)