ACCA Advanced Taxation (ATX) Practice Exam

What does 'at par' mean in relation to shares?

1. When shares are sold at their nominal value

2. When shares are sold for a discount

3. When shares are valued above market value

4. When shares are given as a gift

The correct answer is: When shares are sold at their nominal value

'At par' refers to shares being sold at their nominal value, which is the value that is stated on the face of the share certificate. This means that when shares are issued 'at par', investors purchase the shares for the price equal to their stated nominal value, without any premium or discount. This is a common practice in corporate finance where companies may issue shares to raise capital at the value predetermined when the shares were created. The concept is important in understanding how shares are initially priced during an offering and how this affects the balance sheet of a company. Selling shares at par ensures that the share capital reflects the nominal amount that shareholders are investing into the company. Other options do not accurately reflect the definition of 'at par'. For instance, selling shares for a discount pertains to shares offered below their nominal value, and valuing shares above market value involves pricing outside of the nominal framework. Giving shares as a gift does not relate to their pricing or value, but rather to the transfer of ownership without a financial transaction involved. Therefore, the answer is firmly established as selling shares at their nominal value.