In addition to the purchase of own shares by a company and to issue fully paid bonus shares, for which of the following purposes security premium account balance could be used?
(A) To write-off preliminary expenses of the company.
(B) To pay premium on the redemption of preference shares or debentures of the company.
(C) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company
(D) To pay the issue price of debentures.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (C) only
The balance of the Securities Premium Account is not free money of the company: the Companies Act allows it to be used only for a short list of purposes, all connected with the company’s own securities.
(A) To write-off preliminary expenses of the company. Correct. Preliminary expenses may be written off against it.
(B) To pay premium on the redemption of preference shares or debentures of the company. Correct. The premium payable on redemption is an allowed use.
(C) To write-off the expenses of, or commission paid, or discount allowed on any securities of the company Correct. Issue expenses, commission and discount on any securities may be written off against it.
(D) To pay the issue price of debentures. Incorrect. The Act allows the premium on redemption to be paid from it, not the issue price of debentures; the issue price is money the company receives, not a payment it makes.
NCERT (2026-27 edition):
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