Par value
Encyclopedia of Business Terms and Methods, ISBN 978-1-929500-10-9. Copyright © 2012 by Marty J.Schmidt. Revised 10 March 2012.
The Meaning of Par Value
The term par value is applied both to shares of stock issued by companies and to bonds issued by companies, governments, and other entities. Par value has different meanings in each case, however.
- When shares of stock are issued by a company, par is the nominal, or officially stated value of a stock share when it is issued. However, the actual price paid at issue can and often does rise above par. The funds above par value paid to the issuing company for shares are called additional paid in capital, or contributed capital. The term par came into use as a way for companies to assure the market that no shares would be sold below par (no one would receive favorable treatment).
Par value has little real relevance for accounting, because a stock’s market value (and the amount for which the company can actually sell it) can be quite different from par value. Nevertheless, comapnies keep separate balance sheet listings for funds recieved as the par component of issued stock sales, and funds received as "contributed funds in excess of par." These two sums appear in separate lines on the balance sheet under Owner's Equity.. - A bond's par value, or face value, is the amount that the issuing company or government entity promises to repay the bond holder at a certain date (maturity date). A so-called "$100 Bond" has a par value of $100, meaning the bondholder will be repaid $100 at maturity in addition to any interest earned.
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