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CA Intermediate · Corporate and Other Laws · Share Capital and Debentures

Anand Realty Pvt Ltd issues 1,000 equity shares of Rs 10 each at a premium of Rs 5 per share. The company wishes to use the securities premium account for certain purposes. Which of the following uses of the securities premium account is permitted by the Companies Act, 2013?

Securities premium may be used to write off preliminary expenses. The Act permits it for bonus shares, preliminary expenses, issue expenses and discount, premium on redemption of preference shares or debentures, and buy-back. It cannot be used to pay dividends or to write off accumulated losses.

  1. APaying dividend to equity shareholders in the current year
  2. BWriting off the preliminary expenses of the companyCorrect
  3. CWriting off losses from the statement of profit and loss of earlier years
  4. DFunding the personal loan of a director as an advance

Explanation

The securities premium account may be applied for issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses, commission or discount on issue of securities, providing for premium on redemption of preference shares or debentures, and buy-back of shares. Writing off preliminary expenses is therefore permitted. Using it for dividend or to write off accumulated losses is not a permitted use.

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