Jain and Co. purchased a machine from Young Life Machine Limited for Rs. 3,80,000. As per the purchase agreement, Rs. 20,000 were paid in cash and balance by issue of shares of Rs. 100 each. How many shares are issued if the shares are issued at 20% premium.

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

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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

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Number of shares to be issued = $\frac{\text{Balance amount to be paid}}{\text{Issue price per share}}$

Number of shares = $\frac{3,60,000}{120}$ = 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.