Question

security premium reserve in an example of.....................?
1. revenue reserve
2. Capital reserve
3. reserve capital
4. Revaluation reserve

Answer 1

Revenue Reserve is correct one.

Answer 2

Solution :-

The correct answer of this question is option (2), Capital Reserve.

Security Premium Reserve -

Security premium Reserve is an example of capital reserve. Capital reserves are the reserves that are created in particular situations such as revaluation of assets, issue of shares and debentures at premium or redemption of shares. They are not created out of profits and also never available for distribution as dividends. These reserves can be used for following purposes by the companies.

1) To issue of fully paid bonus shares.

2) To write off preliminary expenses.

3) To write off the expenses of commission paid or discount allowed on any issue of shares or debentures of the company.

4) To provide for the premium payable on the redemption of preference shares or debentures of the company.

5) For purchasing any company's own shares i.e. buy back.