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

Arvind Pharma Ltd issued 10,000 equity shares of Rs 100 each at a premium of Rs 20 per share. The company wants to use the securities premium account. Which use of the securities premium amount is permitted by the Companies Act, 2013?

Securities premium may be used to write off preliminary expenses. The Act lists limited uses, including bonus shares, share issue expenses or commission, redemption premium and buy-back. It cannot be used to pay dividend, absorb general losses or meet routine revenue expenses such as repairs.

  1. APaying dividend to equity shareholders in the year of low profit
  2. BWriting off the preliminary expenses of the companyCorrect
  3. CWriting off the losses incurred in the past three years
  4. DWriting off the cost of repairs to the factory building

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 payable on redemption of preference shares or debentures, and buy-back. Payment of dividend, writing off general losses and charging repairs are not permitted uses.

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