Q26. For which one of the following, the balance in the Securities premium Reserve Account cannot be used? (a) To write off the preliminary expenses of the company (b) To pay a premium on the redemption of preference shares of the company. (c) To pay interest on the debentures of the company (d) To pay for buyback of its own shares.
Answers
Solution
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Correct option is
B
Writing off losses of the company
The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value. In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.
It can be used only for the following five purposes:
(a) To issue fully paid bonus shar
Answer:
To pay interest on the debentures of the company [OPTION C] will not be used.
Explanation:
- Securities premium Reserve is the extra or additional amount charged by the company on the original face value of every share.
- It is a nominal account that says debit all expenses & losses and credit all income and gains.
- Securities Premium is shown on the liabilities side of the company's balance sheet under the reserve & surplus.
- It is a reserve account.
- SECURITIES PREMIUM IS USED FOR THE FOLLOWING PURPOSES:
- Buyback of shares
- To write off the preliminary expenses of the company
- To pay for the buyback of its own shares.
- To pay a premium on the redemption of preference shares of the company.
- To pay a premium on the redemption of debentures of the company.
thus, To pay interest on the debentures of the company [OPTION C] will not be used by the securities premium reserve account.
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