Difference between securities premium reserve and premiun on redemptiom
Answers
Answer:
When the company decides to issue shares at a price higher than the nominal value or face value we call it shares issued at a premium. It is quite a common practice especially when the company has a great track record and strong financial performances and standing in the market.
So say the face value of a share is Rs 100/- and the company issues it at Rs 110/-. The share is said to have been issued at a 10% premium. The premium will not make a part of the Share Capital account but will be reflected in a special account known as the Securities Premium Account.
Now, this amount of premium can be called up by the company at any given time, i.e. with any call. The general norm is to collect the premium with either allotment or application money, rarely with call money. The premium amount as we discussed is credited to the Securities Premium Account. This account is found under the heading of Reserves and Surplus on the liabilities side of the Balance Sheet.
Shares Issued at Premium: Securities Premium Account
Securities Premium Account
Now according to the Companies Act 2013, there are some laws about the utilization of the Securities Premium Account. It states the specific purposes for which this balance may be used. So the account can only be used for such specific purposes and no other purpose.
To issue fully paid-up bonus shares to its existing shareholders. However, you cannot exceed the limit of the unissued share capital of the company.
Securities Premium Account can be used for writing off any preliminary expenses of the company.
To write off expenses of issue of shares and debentures, such as commission paid or discount given on the issue of shares.
The balance can also be used to provide for the premium that is payable on the redemption of debentures or of preference shares of the company.
And finally, it can be utilized by the company to buy back its own shares.
Accounting Treatment for Shares Issued At Premium
The accounting treatment for shares issued at a premium will differ slightly than those issued at par. Let us see some journal entries for the same.
Answer:
A debenture is said to be issued at a premium when the Issue price is more than the nominal (face) value of a debenture. Premium on redemption of debenture implies that the company is paying more than what it got at the issue of the debenture to the debenture holder at the time of redemption .