Difference
between Market value and par value
Difference between par value and market value can be
explained in term of following aspects;
1. Face
Value
Par value is value appearing on the face of
instrument and therefore also known as face value of security. Face value is
normally regulated by the regulator i.e. each share of $ 10 or $ 100, where the
market value of the instrument is determined by the security market i.e. stock
exchange.
2. Issuing Price of instrument
Instrument
is issued at par value and not at market value. However, security may be issued
at premium (above par value) or at discount (below par value) due to high
market or low market price than par value.
3. Trading of Securities
Securities
or instrument are traded in the market at market price and par value has no
relevance in trading.
4. Dividend Declaration
Dividend
is declared on the bases of par value and market price is not considered at the
announcement of dividend. For example 10% dividend of a share having par value
$ 10 means $ 1.
5. Liquidation price
In
case of liquidation, equity holder liability will be calculated on the bases of
par value and not bases of the market price paid by him at the time of
purchase.
6. Books of account recording
In
book of account share price is recorded at par value, in case or premium or
discount issue , the additional amount transferred to share premium account or expenses out in case of discount.
