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

Kaveri Industries Ltd has issued 10,000 equity shares of Rs 10 each at a premium of Rs 5 per share. The company wants to use the securities premium account. Which use is permitted under the Companies Act, 2013?

The securities premium account can be used to write off preliminary expenses. It is also usable for bonus shares, issue expenses, premium on redemption and buy-back, but not for paying dividends or routine expenses such as salaries.

  1. APaying the ordinary annual dividend to equity shareholders
  2. BWriting off the preliminary expenses of the companyCorrect
  3. CPaying the salary of the managing director
  4. DFinancing the purchase of the company's own land by transfer to the revenue account

Explanation

Securities premium may be applied for issuing fully paid bonus shares, writing off preliminary expenses, writing off share or debenture issue expenses and commission or discount, providing for premium on redemption of preference shares or debentures, and buy-back of shares. Dividend and salary are not permitted uses.

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