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CS Executive · Corporate Accounting and Financial Management · Related Aspects of Company Accounts

Under the Companies Act, 2013, for companies whose financial statements comply with the prescribed accounting standards under section 133 (the class covered by sub-clause (i)), from which source must the premium payable on redemption of preference shares be provided before redemption?

The premium must be provided out of the company's profits before redemption. For companies following the prescribed accounting standards under section 133, the Act does not allow the securities premium account for this, unlike companies in other cases.

  1. ASecurities premium account only
  2. BProfits of the companyCorrect
  3. CCapital Redemption Reserve
  4. DEither profits or securities premium, at the company's choice

Explanation

For the class of companies in sub-clause (i), the premium payable on redemption must be provided out of profits before the shares are redeemed. Using securities premium is permitted only in the other cases, or for pre-commencement issues. CRR is created from profits for nominal value, not for premium.

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