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CA Foundation · Accounting · Company Accounts

Under the Companies Act, 2013, the amount collected by a company from shareholders as securities premium can be used for which of the following purposes?

Securities premium can be used to write off preliminary expenses. It is a restricted reserve that may be applied only for purposes listed in the Companies Act, such as bonus shares, issue expenses, redemption premium and buy-back, but not for dividends, depreciation or general losses.

  1. APaying dividend to equity shareholders
  2. BWriting off the preliminary expenses of the companyCorrect
  3. CProviding for depreciation on fixed assets
  4. DWriting off the accumulated losses shown in the Statement of Profit and Loss

Explanation

Securities premium may be applied only for permitted purposes such as issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses or commission on issue of shares or debentures, providing for premium on redemption of preference shares or debentures, and buy-back. Dividend, depreciation and absorbing general losses are not permitted uses, so writing off preliminary expenses is the only correct option.

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