Question

Securities Premium cannot be used:

• A. to issue fully paid bonus shares
• B. to write-off preliminary expenses of the company.
• C. to pay premium on the redemption of preference shares or debentures of the company.
• D. to pay dividend to the shareholders of the company

Hint:

Remember, securities premium is a capital reserve and cannot be distributed as dividends; it is mainly used for issuing bonus shares, writing off expenses, or paying redemption premiums.

Answer 1

The Correct Option is D

Step 1: Understanding Securities Premium Account usage.
Securities Premium Account is a capital reserve created when shares are issued at a premium. According to the Companies Act, the premium amount can be used only for specific purposes, such as:
Issuing fully paid bonus shares to shareholders,
Writing off preliminary expenses of the company,
Paying premium on the redemption of preference shares or debentures.
Step 2: Restrictions on Securities Premium.
It cannot be used for distributing dividends to shareholders, as dividends must be paid out of the company’s profits, not capital reserves like the Securities Premium Account. Therefore, option (d) is the correct answer.