Rahul Limited purchased a building from Handa Limited for Rs.5,40,000 and the payment is to be made by the issue of shares of Rs.100 each. What will…

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 = $\frac{\text{Purchase consideration}}{\text{Issue price per share}}$Issue price per sharePurchase consideration​

Number of shares = $\frac{5,40,000}{120}$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)