CMA Intermediate · Corporate Accounting and Auditing · Redemption of Preference Shares, Issue and Redemption of Debentures
A company has issued debentures that are due for redemption. Under the Companies Act, 2013, which of the following is a permitted application of the securities premium account in connection with debentures?
The securities premium account may be used to provide for the premium payable on redemption of debentures, as the Companies Act, 2013 expressly allows in section 52(2)(d). It cannot be used to pay interest or the principal of debentures, nor to create the Capital Redemption Reserve.
- AProviding for the premium payable on redemption of the debenturesCorrect
- BPaying the interest accrued on the debentures
- CTransferring an amount equal to the nominal value of debentures to Capital Redemption Reserve
- DPaying the principal amount of the debentures on maturity
Explanation
Section 52(2)(d) allows the securities premium account to be used for providing for the premium payable on redemption of redeemable preference shares or of any debentures. It also permits writing off discount allowed on the issue of debentures. It does not permit paying interest or the principal amount of the debentures, and a Capital Redemption Reserve transfer is not the purpose of the securities premium account.
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