Skip to content

CS Executive · Capital Market and Securities Laws · Issue of Capital and Disclosure Requirements

Sundaram Textiles Ltd, a listed company, has a large balance in its asset revaluation reserve and also a healthy securities premium account. Its articles authorise capitalisation of reserves. The Board proposes to issue fully paid-up bonus shares. Which source can it NOT use for this purpose under the Companies Act, 2013?

A company cannot issue bonus shares by capitalising a reserve created by revaluation of assets. The Companies Act, 2013 allows free reserves, securities premium and capital redemption reserve, but the proviso to section 63(1) expressly prohibits using revaluation reserves.

  1. ASecurities premium account
  2. BFree reserves
  3. CCapital redemption reserve account
  4. DReserve created by revaluation of assetsCorrect

Explanation

Section 63(1) permits bonus shares out of free reserves, the securities premium account or the capital redemption reserve account. The proviso bars capitalising reserves created by revaluation of assets. Securities premium is therefore a permitted source, not a barred one.

Did you get it right without looking?

One question tells you little. A timed set on Issue of Capital and Disclosure Requirements shows your real accuracy, how long you take and where you lose marks.

Practise Issue of Capital and Disclosure RequirementsFree diagnostic mock

More Issue of Capital and Disclosure Requirements questions