The amount of security premium reserve cannot be used for:

The correct answer is Option (3) → Purchase of fixed assets

The securities premium is capital money, the amount shareholders paid over the face value of their shares. It is not a profit, so it cannot be spent on whatever the company likes: the law limits it to a short list of uses that are themselves capital in nature, such as costs of raising or returning capital. Buying fixed assets is an ordinary investment of funds and is not on that list, so the reserve cannot be used for it.

• Option (1) Writing-off preliminary expenses — A permitted use. The preliminary expenses of the company may be written off against the reserve.

• Option (2) Buyback of shares — A permitted use. The reserve may be used for the purchase of the company’s own shares.

• Option (4) Paying premium on the redemption of preference shares — A permitted use. The reserve may pay the premium due on redemption of preference shares or debentures.