Which of the following statements are true in relation to securities premium reserve ?
(A) ‘Securities Premium Account’ is shown under the title ‘Assets’ of the company’s balance sheet under the head ‘Reserves and Surpluses’.
(B) Securities Premium Account balance can be used to write-off preliminary expenses of the company;
(C) Securities Premium Account balance can be used to pay premium on the redemption of preference shares or debentures of the company.
(D) Securities Premium Account balance can be used to issue partly paid bonus shares to the extent not exceeding unissued share capital of the company;
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (B) and (C) only
The Securities Premium Account is a reserve, part of the shareholders’ funds, and the Companies Act allows it to be used only for a few named purposes.
(A) ‘Securities Premium Account’ is shown under the title ‘Assets’ of the company’s balance sheet under the head ‘Reserves and Surpluses’. Incorrect. Reserves and Surplus is a head of ‘Equity and Liabilities’, not of ‘Assets’.
(B) Securities Premium Account balance can be used to write-off preliminary expenses of the company; Correct. Writing off preliminary expenses is one of the permitted uses.
(C) Securities Premium Account balance can be used to pay premium on the redemption of preference shares or debentures of the company. Correct. Paying the premium on redemption is also a permitted use.
(D) Securities Premium Account balance can be used to issue partly paid bonus shares to the extent not exceeding unissued share capital of the company; Incorrect. Only fully paid bonus shares may be issued out of it. One word, “fully” turned into “partly”, and the whole line became false. Check every adjective before you tick.
NCERT (2026-27 edition): |