Question

(a) Explain the provision relating to utilization of the securities premium Account.

Answer 1

When the company allots shares for the first time these shares can be issued at their nominal price or above or below such a nominal price. when shares are issued aboive the par/nominal price, the shares are said to be issued at a premium

Explanation:

The premium price may be demanded at any specified period by the company, i.e. through any call. The assumption is that premiums will be collected by application/allotment money, seldom through call money. The premium company negotiates is "credited" to the "Securities Premium Account". This account is listed on the liabilities section of the balance sheet under the heading of the "Reserves & Surpluses".

Under the "Companies Act 2013", the "Securities Premium Account" is in every form covered under legislation. It defines the particular purposes with which this balance should be applied. The account should also only be used for such particular reasons and not for any other reason.

1. Issuance of "fully paidup bonus shares" to the company's shareholders. But the company, cannot surpass the "unissued share capital" limit of a company.
2. It can be utilised for "writing off" "preliminary expenses" of a company.
3. Writing off "expenses" of "shares & debentures issues", such as discount given/commission paid on the share issues.
4. The balance is used to "provide for the premium" which is payable on the "debenture/preference shares redemption" of a company.
5. It can be utilised to "buy back" the company's "own shares".

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'which account is security premium reserve account ?personal real.

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